Taxation & Estate Planning

The Trustee’s Duty to Disclose

By Michael D. Bonasera, Esq.

Professor Beyer this morning pointed to an article by this (jolly looking) associate at McGuire Woods LLP, called, Navigating the Trustee?s Duty to Disclose, Prob. & Prop., Jan./Feb. 2009, at 40.

He intros his article thus:

Parents are rightfully concerned about the possible negative effects of inherited wealth on the lives of their children. Those concerns are frequently brought into the trust arena when trustees attempt to comply with their duty to disclose information about trusts to members of younger generations. The resulting tension is well-known to many trust officers?and they don?t like it.

Surcharge litigation is on the rise. The causes are many?the increasing transfers of larger amounts of wealth from older generations to younger generations and into trusts (and the corresponding rise of entities with freshly minted trust powers), changing tax laws, escalating beneficiary expectations, the dramatically increasing complexity and volatility of investments, and growing aggressiveness by lawyers. Regardless of the causes, the reality of fiduciary risk is aggravated when the trustee fails to fully understand its duties.  Those duties include the trustee?s duty to disclose information to beneficiaries, which, in turn, is shaped primarily by a combination of the terms governing instrument and state law.

Trust law is in a state of rapid development, in large part through the expanding enactment of the Uniform Trust Code. Although the UTC has been largely successful in making the law uniform across the enacting jurisdictions, divergent policy views and other interests have prevented uniformity on the issue of trustee disclosure. This article will look at the relationship between disclosure and fiduciary risk, the difficulty in defining the scope of the disclosure obligation and the strategic use of disclosure to manage fiduciary risk under the Uniform Trust Code.

Sounds like its worth reading…  Ohio is in the midst of (possibly) redrafting those sections of its recently adopted trust code that speak to a Trustee’s duties to disclose.  Some of the changes are welcome ones over Ohio’s previous duties imposed by common law and our woefully inadequate statues, now thankfully gone.  But, depending on your situation, a Trustee’s duty to disclose may be exactly what a Grantor is trying to avoid in setting up the trust in the first place - for reasons that are not necessarily always sinister either.

Full post as published by The Ohio Trust & Estate Blog on February 01, 2009 (boomark / email).