Have you ever looked at a 50-year old trust document? Even one 100-years old? It can be striking to see how much has changed in these documents over time and how much has stayed the same. But odds are pretty strong that there is one paragraph or article in those ancient documents that isn’t all that different from what’s in modern day trusts. And unless you’re an estate planning attorney or trust officer, odds are also pretty strong that you’ve never had a conversation about it. And if you haven’t talked about it, you almost certainly should.
I had the privilege of being part of a collaborative effort to re-write Wisconsin’s Trust Code. The new law became effective on July 1, 2014, and was based heavily on the Uniform Trust Code. In our work, we carried through an innocuous sounding phrase that ended up putting the spotlight on this type of provision in my home state. The phrase was that trustees have a duty to keep beneficiaries “reasonably informed about the administration of [a]trust.” Certainly not an offensive set of words — but the implications of this “new” duty have proved to be very important to almost everyone that I’ve talked to about the issue.
Without going into too much depth (this is already more lawyer-y than my typical post), the conversation that needs to happen revolves around when is the right time to communicate about finances and when is it preferable to hold back some or all of the information. And this conversation typically needs to happen in at least three contexts:
- During the Survivor’s “Overlife”
In a traditional estate tax plan for a married couple, assets often pass to a trust for the benefit of the surviving spouse and descendants. Those descendants are beneficiaries of the trust, but those couples may be surprised that their children or grandchildren (or their step-children or step-grandchildren) may have a legal right to know how much is in the trust and how monies are spent. While there can be many reasons for disclosure, whether to disclose or not should be a choice for the one establishing the trust.
- During a Primary Beneficiary’s Lifetime
If there are continuing trusts, usually a child (or other primary beneficiary) and his or her descendants are beneficiaries of a particular trust. Again, there can be reasons for disclosure. But since communication about the nature and extent of wealth can have both positive and negative consequences, whether disclosures should be made to secondary beneficiaries should be thoughtfully considered. It may also be preferable to view this as a parenting decision best left to the primary beneficiary.
- During Young Adulthood
It seems almost universal that people prefer trustees have the discretion to withhold information from financially immature, but legally adult, beneficiaries. A 19-year old with a significant trust (or perhaps a modest trust whose value is overestimated by the young adult beneficiary) may make different choices about education, career, vocation, etc., depending on whether he or she has full, partial or no information about what may be set aside in the trust.
The point isn’t that there is a right or wrong way to deal with the dissemination of financial information. Rather, since we manage the flow of information to our children and grandchildren based on their capacity to absorb the information in a positive manner, shouldn’t our trusts — which are, at least in part, communication tools — do the same?
What do you think?
Great article, Mark. Communication is crucial with any planning.
You make a very good point about the need to carefully consider how financial information, particularly about a trust, should be disseminated to secondary and/or young adult beneficiaries. I agree that disclosing the size of a trust could have negative consequences when it comes to certain beneficiaries. As a trustee, however, I believe we need to balance the desire to protect the beneficiaries with the need to get our accounting statements approved. If we’re given discretion to withhold information from certain beneficiaries, we will want to make sure there is someone else who can approve our accounts. Consider naming a Designated Representative to receive and approve statements on behalf of young adults between age 18 and ___. In addition, we’d want to see clear guidelines in the trust document detailing acceptable reasons for and/or situations when we should withhold information. This whole topic is an interesting one and deserves attention and discussion before a trust is executed.
Good observations, Laurene. It is potentially a challenging position for a trustee to be in — balancing the potential negative impact of release of information (usually tough to weigh how much is too much) and the legitimate need to manage the risk of serving in a fiduciary capacity. The latter is the responsibility of the creators of the trust, in my view. If they wish the trustees to have the latitude to withhold information, they must grant the trustees different tools to manage their risk.