Recently, I posted about a trustee’s duties upon appointment as trustee. I noted that a trustee has a duty not only to inform trust beneficiaries about their appointment and the existence of the trust, but also to keep beneficiaries “reasonably informed” regarding the trust’s administration.
How does a trustee keep beneficiaries “reasonably informed”? An annual report may be helpful to this regard. Some trusts require the trustee to provide an annual report to the beneficiaries and other trusts waive any reporting requirement. I believe providing beneficiaries with information on an ongoing basis in an annual report can have multiple benefits. First, it facilitates communication between the trustee and beneficiaries. Second, it can help to avoid the perception that the trustee is concealing assets from a beneficiary. Third, providing an annual report with sufficient information to the beneficiaries can help a trustee avoid breach of fiduciary duty claims by a beneficiary down the road.
A beneficiary is prevented from alleging breach of trust claims against a trustee involving acts covered in a trustee’s report more than three years after the beneficiary receives the report, provided the report gives the beneficiaries “sufficient notice” of a potential claim. RCW 11.96A.070 states that a trustee has given beneficiaries sufficient notice of a potential claim if the trustee’s annual report for the trust includes the following:
(i) A statement of receipts and disbursements of principal and income that have occurred during the accounting period;
(ii) A statement of the assets and liabilities of the trust and their values at the beginning and end of the period;
(iii) The trustee’s compensation for the period;
(iv) The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the period;
(v) Disclosure of any pledge, mortgage, option, or lease of trust property, or other agreement affecting trust property binding for a period of five years or more that was granted or entered into during the accounting period;
(vi) Disclosure of all transactions during the period that are equivalent to one of the types of transactions described in RCW 11.98.078 (which sets forth transactions that violate a trustee’s duty of loyalty) or otherwise could have been affected by a conflict between the trustee’s fiduciary and personal interests;
(vii) A statement that the recipient of the account information may petition the superior court pursuant to chapter 11.106 RCW to obtain review of the statement and of acts of the trustee disclosed in the statement; and
(viii) A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the trustee delivers the report in the manner provided in RCW 11.96A.110.
We strongly recommend that a trustee consult with an attorney in preparing the annual report, and in responding properly to requests for information from beneficiaries.
Photo credit: Marvin Foushee on Flickr