In my previous posts regarding trust administration, I wrote about a trustee’s fiduciary duties, the legal requirements for trustees to keep beneficiaries informed about a trust’s administration, and a trustee’s investment duties. In this post, I will discuss a trustee’s duties when a trust terminates.
All good things must come to an end, and so must all trusts administered under Washington law. When does a trust terminate? Many trusts are drafted to terminate after the occurrence of a certain event, such as when the youngest beneficiary attains a certain age or the death of a beneficiary. Some trusts also provide that when trust assets are exhausted, or when they reach a certain minimum threshold, the trust will terminate. In that event, the trust sets forth instructions to the trustee regarding the distribution of the remaining trust assets. And, if the trust does not terminate by its own terms, Washington’s “Rule Against Perpetuities” will automatically terminate a trust 150 years after its effective date. (Interested in learning more about the Rule Against Perpetuities? Watch The Descendants.)
When the time comes to terminate a trust, a trustee must follow any provision contained in the trust itself governing the final distribution of trust assets upon termination of the trust. In addition, a trustee should be aware of the requirements of RCW 11.98.145. This statute provides that upon the termination of a trust (or termination of a portion of a trust, which may happen if a trust contains sub-trusts), the trustee may send a proposed plan for distributing the remaining trust assets to the beneficiaries upon the trust’s termination.
While sending such a distribution plan to the beneficiaries is not required, following the statute’s requirements can protect a trustee from potential claims by a beneficiary. If a beneficiary does not object within 30 days after the trustee sends a distribution proposal that informs the beneficiary of the right to object and of the time allowed for objection, the beneficiary loses the right to object at a later date. For example, Tracy Trustee serves as the trustee of a trust with terms directing that the trust terminate when the youngest of three beneficiaries reaches age 25 and that the remaining trust assets be distributed to the beneficiaries free of trust. Tracy sends a letter to the three beneficiaries, Benny, Penny, and Lenny, informing them that now that Penny has reached her 25th birthday, Tracy plans to terminate the trust and distribute 1/3 of the trust’s remaining assets to each of them in 30 days unless one of them objects. After 30 days, Tracy Trustee distributes the trust assets as she proposed. Six months later, she receives a letter from Benny objecting to the distributions on the grounds that he believes he should receive a greater share of the remaining trust assets than the other two beneficiaries because they make more money at their jobs than he does. Benny’s objection to the distribution is baseless, but it also is barred by RCW 11.98.145 because Tracy provided notice.
If you are serving as a trustee, I encourage you to consult with an attorney on an ongoing basis to make sure you are fully following both the terms of the trust and Washington law.
Photo credit: Andrew Smith on Flickr