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Irrevocable Trusts and the Rights of Beneficiaries to Information - Who Must Receive What and When?

Client Alerts/Reports

High net worth individuals frequently create irrevocable trusts during life to benefit their spouses, children, grandchildren or other family members while also managing their access to the trust assets. These trust settlors similarly may want to control the beneficiaries’ access to trust information for various reasons—for example, due to concerns that knowledge of the assets may create conflict among beneficiaries or potentially disincentivize a beneficiary from seeking productive social or educational development. Most states, however, require trustees of irrevocable trusts to provide some form of trust information to the beneficiaries, although the rules vary extensively. For instance, some states mandate that trustees provide beneficiaries with notice of an irrevocable trust’s existence, annual trust reports and disclosure of additional trust information upon request, while other states permit the trust agreement to leave most reporting to beneficiaries solely in the discretion of the trustee. 

The reporting requirements may result in more disclosure than the settlor intended and create unexpected liability exposure for any friends, family members or other “nonprofessionals” acting as trustees, who likely are unaware of these technicalities. When establishing or administering irrevocable trusts (or ones that will eventually become irrevocable), settlors and trustees should understand which irrevocable trust reporting rules are mandatory under state law and which can be modified or waived by the trust agreement. Below are brief overviews of the rules that apply to irrevocable trusts in the following states.  

California

Mandatory Reporting. A trustee of an irrevocable trust has a duty to keep trust beneficiaries reasonably informed of the trust and its administration, which cannot be waived by the trust agreement. For irrevocable trusts, this mandatory “duty to inform” generally requires the trustee to provide a true and complete copy of the trust to (1) any beneficiary or heir of a deceased settlor upon request in certain situations when a revocable trust becomes irrevocable (such as due to a settlor’s death) or when a power of appointment is effective or lapses upon a settlor’s death; (2) any beneficiary upon request when there is a change in trustee of an irrevocable trust; or (3) the Attorney General, if requested and the irrevocable trust is a charitable trust subject to the Attorney General’s supervision. 

Additional Reporting. The trustee of an irrevocable trust generally must account at least annually to each beneficiary who is currently required or eligible to receive trust distributions, as well as upon a change of trustee and termination of the trust. Beneficiaries also have a legal right to demand more frequent accountings, but not more often than every eight months. In contrast, if a trust is revocable, so long as the person holding the power to revoke is competent, the trustee only owes duties, including the duty to account and the duty to report information, to the person holding the power to revoke, not to the trust beneficiaries. 

Informal (non-court) accountings must cover the irrevocable trust’s last complete fiscal year or the period since the last accounting and include (1) a statement of receipts and disbursements of principal and income during the covered period; (2) a statement of the trust’s assets and liabilities as of the end of the covered period; (3) the trustee’s compensation for the covered period; (4) the agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the covered period; (5) statements that the account recipient may petition the court pursuant to Probate Code Section 17200 to obtain a court review of the account and trustee’s acts and that claims against the trustee for breach of trust may not be made after three years from the date the beneficiary receives an accounting or report disclosing facts giving rise to the claim. Other specific requirements and a specific format for reporting will be needed if the accounting is filed with the court (a “formal accounting”). 

The trustee of an irrevocable trust may account or report to the beneficiary’s legal representative for an adult beneficiary not “reasonably capable of understanding” or to a beneficiary’s guardian or parent for a minor beneficiary (so long as the guardian or parent does not have a conflict of interest). 

Modifications/Waiver. The trustee’s duty to inform beneficiaries of an irrevocable trust as described above is mandatory and cannot be waived. The only exceptions are when the beneficiary and the trustee are the same person or the trust is revocable by a person (typically the trust creator) who is competent. (Note, however, that California has recently imposed certain duties on a trustee to account and report to revocable trust beneficiaries if all persons holding a revocation power become incompetent; to see a discussion of these new rules in this newsletter, click here [insert hyperlink to article on California legislative update].)

Unlike the duty to inform, trust accountings for irrevocable trusts generally are not required if the trust agreement waives the trustee’s duty to account or if a beneficiary waives the right to receive an accounting in writing, although a court still may compel a trust accounting if it is reasonably likely that a material breach of trust has occurred. Also, no account is required if the trustee and the beneficiary are the same person

District of Columbia

Mandatory Reporting. There are certain reporting requirements for irrevocable trusts under the D.C. Code that the settlor cannot waive but can modify and/or delay within statutorily set limits. To comply with these mandatory reporting rules, a trustee of an irrevocable trust must:

  • Notify qualified beneficiaries who have attained age 25 of the trust’s existence, the settlor’s identity, the right to request a copy of the trust and the right to a trustee’s report. 
  • Respond to a beneficiary’s request for trustee’s reports and other information reasonably related to the trust’s administration.

A trustee’s report identifies the trust assets, liabilities, receipts, disbursements, distributions, and the source and amount of the trustee’s compensation, and lists the market value of the trust assets, if feasible. “Qualified beneficiaries” extend beyond the persons currently entitled or eligible to receive trust distributions and include those who would be so entitled or eligible if the interests of the current beneficiaries terminated or if the trust terminated on that date. 

Additional Reporting. The D.C. Code imposes additional trustee reporting rules, although the settlor can waive these rules (to the extent there is no overlap with mandatory rules) or otherwise modify them as provided below. Under these rules, the trustee of an irrevocable trust must:

  • Keep qualified beneficiaries reasonably informed about the trust’s administration and material facts necessary for them to protect their interests and promptly respond to a beneficiary’s reasonable requests for information related to trust administration.
  • Promptly furnish a copy of the trust upon a beneficiary’s request.
  • Within 60 days after accepting a trusteeship, notify the qualified beneficiaries of the acceptance and of the trustee’s name, address and telephone number.
  • Within 60 days after learning of an irrevocable trust’s creation (or that a revocable trust has become irrevocable), notify the qualified beneficiaries of the trust’s existence, the settlor’s identity, the right to request a copy of the trust and the right to a trustee’s report.
  • Provide a trustee’s report annually to persons currently entitled or eligible to receive trust distributions, as well as upon trust termination or a complete vacancy in the trusteeship, and as otherwise provided by D.C. law. 
  • Notify the qualified beneficiaries in advance of any change in the trustee’s compensation.

Modification/Waiver. A settlor, in the irrevocable trust agreement or another writing given to the trustee, may modify a trustee’s duties to give notice and reports to beneficiaries, including mandatory rules, by (1) waiving or modifying the duties during the settlor’s and/or the settlor’s spouse’s lifetimes, (2) specifying an age other than 25 at which beneficiaries must receive notice of the trust, and/or (3) designating a person who can act on a beneficiary’s behalf in good faith to protect the beneficiary’s interests to receive any required notice, information or reports. A beneficiary also may waive the right to any trustee’s report or other required information and may withdraw the waiver at any time.

Illinois

Illinois recently adopted significant changes to its trust laws, including those affecting trustees’ duties to report to beneficiaries. For trusts that became irrevocable after January 1, 2020 (and for certain revocable trusts), the Illinois Trust Code now imposes certain mandatory reporting rules, with less flexibility to have these requirements waived. Settlors of newer Illinois irrevocable trust agreements should understand and modify (to the extent possible) the trustee reporting obligations to beneficiaries, so they are consistent with the settlors’ intentions.

Mandatory Reporting. A trustee must send to each current trust beneficiary and each “presumptive” remainder beneficiary (i.e., the person who would receive the trust assets if the current beneficiary passed as of the reporting date) the following: (1) a notice of the trust’s existence and a copy of the trust and (2) an annual accounting of receipts, disbursements and distributions and an annual inventory of trust assets. Upon trust termination, a trustee must also send an accounting to the recipients of the terminating trust’s assets. 

Modification/Waiver. A trust agreement can waive the requirement to send an annual accounting and inventory to presumptive remainder beneficiaries but not the other requirements listed above. A current or future beneficiary, however, can voluntarily waive the right to receive any or all of the foregoing documentation. 

In addition, the trust agreement can designate a “Designated Representative” to receive the foregoing accountings and other documentation on behalf of a current or remainder beneficiary. For current beneficiaries, however, the representation will apply only until age 30 (meaning each current beneficiary age 30 or over must receive the accountings and other documentation directly unless voluntarily waived by that beneficiary). There are limitations on who can act as the Designated Representative (e.g., a trustee may not), and the Designated Representative owes fiduciary duties to the represented beneficiaries. Finally, a holder of a broad power of appointment over a trust may receive accountings and other documentation on behalf of beneficiaries whose entire future interest may be eliminated by the exercise of such power (instead of the trustee sending them to such beneficiaries). 

Maryland

Mandatory Reporting. For irrevocable trusts, Maryland mandates most of a trustee’s duties to report to the trust beneficiaries, with a limited ability for the trust agreement to waive or modify them. Under the Maryland Estates and Trust Code, a trustee of an irrevocable trust must:

  • Notify qualified beneficiaries who have attained age 25 of the trust’s existence, the trustee’s identity and their right to request trustee reports and a copy of the trust.
  • Promptly respond to a qualified beneficiary’s request for trust administration information, including a copy of the trust, unless unreasonable under the circumstances.
  • Upon a qualified beneficiary’s request, provide a trustee’s report annually, at trust termination and upon a complete vacancy in the office of the trustee. 

A report identifies the trust assets, liabilities, receipts and disbursements; states the source and amount of the trustee’s compensation; and lists the market values of the trust assets, if feasible. “Qualified beneficiaries” include persons currently entitled or eligible to receive trust distributions and also those who would be so entitled or eligible if the interests of the current beneficiaries terminated without terminating the trust or if the trust terminated on that date.

Additional Reporting. Maryland also requires a trustee of an irrevocable trust to (1) within 60 days after accepting a trusteeship, notify the qualified beneficiaries of the acceptance and of the trustee’s name, address and telephone number; and (2) within 90 days after learning of an irrevocable trust’s creation (or that a revocable trust has become irrevocable), notify the qualified beneficiaries of the trust’s existence, the settlor’s identity, the right to request a copy of the trust and the right to a trustee’s report. 

Modification/Waiver. As noted, the ability to modify or waive a Maryland trustee’s reporting duties is very limited. The additional reporting rules presumably can be modified or waived by the trust agreement to the extent they do not overlap with the mandatory reporting described above. A qualified beneficiary also may waive the right to a trustee’s report or other information (subject to that beneficiary’s right to withdraw the waiver), and a trustee who also is a qualified beneficiary of the trust is not required to provide information to himself or herself.

A settlor also can designate one or more persons to represent a beneficiary and receive certain trust information on his or her behalf; however, the representative cannot simultaneously act as a trustee of the trust benefiting that beneficiary. The representative also will be subject to certain fiduciary liability standards to ensure proper representation of the beneficiary’s interest.

New York

Reporting. The trustee reporting and accounting requirements for New York irrevocable trusts are derived from a patchwork of judicial decisions and statutes, meaning the rules are general and somewhat vague. Recent efforts to pass legislation that would strengthen the laws regarding a trustee’s duty to inform and report, including mandating a trustee’s response to beneficiary requests for a copy of, or information related to, the trust have been unsuccessful. Based on applicable case and statutory law, a trustee’s duties to report and/or account for irrevocable trusts include the following: 

  • A trustee has an absolute duty to account for his or her actions, including a duty to account at a trust’s termination. 
  • Before collecting an annual income commission, a trustee must furnish annual statements to each beneficiary currently receiving income or eligible to receive discretionary distributions of income and any person interested in the trust principal (i.e., a beneficiary eligible to receive discretionary distributions of principal or presumptively entitled to receive principal upon the trust’s termination) who demands the statements. The statement must identify the principal assets on hand as of the statement date and all receipts of income and principal during the statement period, including any commissions retained.
  • Annual statements also must be furnished to any beneficiary receiving trust income or any person interested in the trust principal who requests such statements, regardless of whether the trustee has retained annual commissions. 
  • A trustee may provide a trust accounting voluntarily or may be compelled to account by the petition of certain interested parties (e.g., a beneficiary or creditor). There is no duty to account at specified intervals; however, a trustee may wish to provide an interim accounting during the administration of a trust in certain circumstances, including a co-trustee’s death or resignation or to settle a controversial issue. The trustee should provide the accounting to interested parties to disclose the trustee’s actions and be released from liability with respect to those actions.
  • The parties to a voluntary accounting proceeding are set by statute and include all persons having an absolute or contingent interest in the trust, whether under the terms of the will or trust agreement or by operation of law.
  • An informal accounting does not require any particular form, although the protection provided to the trustee will only be as good as the disclosures made to the beneficiaries. A judicial accounting must report the trust’s receipts and disbursements on an official required form (Official Form JA-4).  

Modification/Waiver. The settlor of a lifetime irrevocable trust may limit the rights of beneficiaries to compel an accounting, for example, during the settlor’s life. Note, however, that trustees of testamentary trusts (those created upon the death of a decedent under a will) may not be excused from accounting (this rule also may apply to trusts created under a revocable trust agreement upon a settlor’s death). Under case law, any provision in a will that purports to do so is void as against public policy. 

Virginia

Reporting. Subject to potential modification and waiver by the trust agreement as discussed below, the Virginia Uniform Trust Code requires a trustee of an irrevocable trust to: 

  • Keep qualified beneficiaries reasonably informed about the trust’s administration and material facts necessary for them to protect their interests, as well as promptly respond to a beneficiary’s reasonable requests for information on the trust’s administration.
  • Promptly furnish a copy of the trust upon a beneficiary’s request.
  • Within 60 days after accepting a trusteeship, notify the qualified beneficiaries of the acceptance and of the trustee’s name, address and telephone number.
  • Within 60 days after learning of an irrevocable trust’s creation (or that a revocable trust has become irrevocable), notify the qualified beneficiaries of the trust’s existence, the settlor’s identity, the right to request a copy of the trust and the right to a trustee’s report. 
  • Provide a report to beneficiaries annually, at trust termination, upon a complete vacancy in the office of trustee and as otherwise provided by Virginia law.
  • Notify the qualified beneficiaries in advance of any change in the trustee’s compensation.

The report identifies the trust assets, liabilities, receipts, disbursements, and the source and amount of the trustee’s compensation and, if feasible, lists the market value of the trust assets. “Qualified beneficiaries” extend beyond persons currently entitled or eligible to receive trust distributions and include those who would be so entitled or eligible if the interests of the current beneficiaries terminated without terminating the trust or if the trust terminated on that date.

Modification/Waiver. Under Virginia law, the terms of the trust agreement generally prevail over the Virginia Uniform Trust Code, with exceptions for certain mandatory rules, including that a trustee must act in good faith and in accordance with the trust’s terms and purposes and the beneficiaries’ interests. A trustee’s duties to inform and report, however, are not listed in the mandatory rules and arguably are subject to modification or waiver by the trust agreement. Nevertheless, a beneficiary may argue that trustees of irrevocable trusts have a common law or public policy duty to keep the beneficiaries reasonably informed about the trust, since the trustees must act in good faith and in the beneficiaries’ interest. Accordingly, if an irrevocable trust agreement waives these duties to report, it should still give the trustee discretion to provide reasonable information to the beneficiaries, including upon request, to comply with any potential common law duties. A beneficiary also may waive the right to any trustee’s report or other required information

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