Both the Uniform Trust Code and the Maryland Trust Act provide that a beneficiary has a right to demand and receive a copy of the trust instrument.[1] The Uniform Trust Code makes this an absolute right upon demand by a beneficiary. The Maryland approach, however, qualifies the right: “Unless unreasonable under the circumstances, a trustee shall …” and only a “qualified beneficiary” has this right.[2] Arguably, the Uniform Trust Code codified the Common Law duty to inform and report:
Under the most basic principle, a beneficiary of an irrevocable trust is always entitled to information about the trust that is reasonably necessary to allow the beneficiary to enforce the trust, even if the terms of the trust restrict disclosure. This traditional principle requires that the existence of the trust itself must always be disclosed — if a beneficiary does not know that a trust even exists for her benefit, then she will not be able to enforce that trust. The basic fact that a trust exists, however, is not normally sufficient. The trustee must also periodically provide beneficiaries information regarding the administration and condition of the trust. Without this information about the method of administration, the beneficiaries may remain unaware of breaches of fiduciary duty until it is too late to obtain relief.
While the duty to inform is normally triggered when a beneficiary requests information from the trustee, the duty is present even without such a request if deemed to be necessary to protect the beneficiary from a third party. For example, if the beneficiary is about to sell her interest in a trust to a third party, and the trustee is aware that the beneficiary’s interest in that trust is more valuable than the beneficiary realizes (and could justify demanding a higher price from the third party), then the trustee is obligated to inform the beneficiary of this information. Additionally, the duty to inform is not limited to current beneficiaries, but also runs “to future beneficiaries regardless of whether [the future beneficiaries’] interests are vested or contingent.” In order to fulfill the duty to inform, a trustee is required to provide a full copy of the trust instrument to the beneficiaries, not merely those portions that directly relate to a particular beneficiary.[3]
Interestingly, setting forth this basic Common Law principle and the extent to which a settlor could restrict the information flowing to a beneficiary was “the most discussed issue during the drafting of the UTC.”[4] Indeed, the majority of jurisdictions that have generally adopted the Uniform Trust Code have modified the provisions relating to disclosure of the trust and of information related to the administration of the trust.[5]
The debate regarding the extent of information that must be provided to the beneficiaries is triggered “by those who advocate allowing the settlor to restrict or eliminate the trustee’s duty to inform and report. Some settlors worry about the effect that knowledge of the trust and its administration might have on the beneficiaries. Consequently, some lawyers advocate the ability to create a ‘quiet’ trust or even a secret trust.”[6]
The proposed Maryland Trust Act makes disclosure subject to a reasonableness test[7] may open the opportunity, if enacted, for a settlor to fine-time disclosure. Thus a settlor might pick a surrogate to receive information (particularly useful, perhaps, in special needs trusts) or limit the information to that part of the trust specifically dealing with that particular beneficiary.[8] On the other hand, the Maryland Trust Act would limit challenges to a trustee’s action to one year after the action is “adequately disclosed” to a beneficiary.[9] This shortened statute of limitations would tend to encourage disclosure.
[1] UTC § 813(b)(1); MTC § 14.5-813(A).
[2] MTC § 14.5-813(A). (“unless unreasonable under the circumstances …”). Also, as with the UTC, only qualified beneficiaries get notice and information. A “qualified” beneficiary is the current distribute/beneficiary plus one level below that beneficiary.
[3] Lauren Z. Curry, Agents in Secrecy: The Use of Information Surrogates in Trust Administration, 64 Vand. L. Rev. 925, 929-30 (2011). See, for example, Fletcher v. Fletcher, 480 S.E. 2d 488 (V. Ct. App. 1997), for a case supporting this traditional Common Law approach.
[4] David W. English, The Uniform Trust Code (2000): Significant Provisions and Policy Issues,” 67 Mo. L. Rev. 143, 202 (2002).
[5] Kevin D. Millard, The Trustee’s Duty to Inform and Report Under the Uniform Trust Code, 40 Real Prop. Prob. And Tr. J. 373, 384 (2005).
[6] Id. at 374.
[7] MTC § 14.5-813(A).
[8] Indeed, this is the approach adopted by the Uniform Probate Code. UPC § 7-303(b) (“[T]the trustee shall provide the beneficiary with a copy of the terms of the trust which describes or affects his interest …”) (Emphasis added.)
[9] MTC § 14.5-904(a).
