“[W]hile a trust is revocable, rights of beneficiaries are subject to the control of the settlor and the duties of the trustee are owed exclusively to the settlor.” MTA § 14.5-603(a); UTC 603. See also Restatement (Third) of Trusts § 74. This rule flows from the fact that the power of revocation is the equivalent to outright ownership:
“Given that a settlor’s power of revocation is the equivalent of ownership of the assets subject to the power, the duties of a trustee are owed exclusively to the settlor, and the trustee cannot be held liable for conduct knowingly approved by a competent settlor that would otherwise be actionable. As a result, at least while the settlor is competent, the trustee of a revocable trust, while clearly subject to normal fiduciary duties to the settlor, is not accountable to, and is under no duty to provide information about the trust to non-settlor beneficiaries. This rule is codified in jurisdictions that have enacted the Uniform Trust Code.”
Bogert’s “Trusts and Trustees,” § 914 (Revocable Trusts – the Trustees’ Duties to Furnish Information and Account.)
MTA § 14.5-603(b) carves out a very limited exception: “While a trust is revocable and a settlor does not have the capacity to revoke the trust, a beneficiary to which distributions may be made during the lifetime of the settlor shall have the right to enforce the trust as if the trust were irrevocable.” Thus, if a settlor provided that the revocable trust may make distributions for his or her spouse during the settlor’s life (a common provision), that spouse could enforce the trust if the settlor lost capacity. Otherwise, because a revocable trust does not become irrevocable by reason of the loss of the settlor’s loss of capacity, no one other than the settlor’s agent or guardian of the property has a right to an action to enforce the trust.
The Maryland approach to the trustee’s duty running exclusively to the settlor of a revocable trust, even after the settlor’s incapacity, differs from the traditional approach. Generally, of course, as long as the settlor of a revocable trust has capacity, he or she enforces the trust (or, indeed, changes the trust) on behalf of all of the other beneficiaries. It is the equivalent of ownership. Upon the settlor’s disability, however, “the other beneficiaries are ordinarily entitled to exercise, on their own behalf, the usual rights of trust beneficiaries, and the trustee is ordinarily under a duty to provide them with accountings and other information concerning the trust and it administration.” Restatement (Third) of Trusts § 74, cmt. e.
The UTC originally followed the traditional position that the duty of the trustee was owed exclusively to the settlor only during his or her capacity to revoke the trust. Upon loss of capacity, the other beneficiaries would have enforcement rights as if the trust had become irrevocable. This provision was placed in brackets in the 2004 amendment to UTC § 603 thus making it an optimal approach:
“Two issues have arisen concerning this incapacity limitation. First, because determining when a settlor is incapacitated is not always clear, concern has been expressed that it will often be difficult in a particular case to determine whether the settlor has become incapacitated and the settlor’s control of the beneficiary’s rights have ceased. Second, concern has been expressed that this section prescribes a different rule for revocable trusts than for wills and that the rules for both should instead be the same. In the case of a will, the devisees have no right to know of the dispositions made in their favor until the testator’s death, whether or not the testator is incapacitated. Under Section 603, however, the remainder beneficiary’s right to know commences on the settlor’s incapacity.
Concluding that uniformity among the states on this issue is not essential, the drafting committee has decided to place the reference to the settlor’s incapacity in Section 603(a) in brackets. Enacting jurisdictions are free to strike the incapacity limitation or to provide a more precise definition of when a settlor is incapacitated, as has been done in the Missouri enactment. (Mo. Stat. Ann. § 456.6-603).”
The Maryland Trust Act, but for a carve-out for current discretionary beneficiaries, restricts a trustee’s duties to duties owed exclusively to the settlor even upon the settlor’s incapacity.
A Kentucky case touches on the issues involved. J.P. Morgan Chase Bank, N.A. v. Longmeyer, 275 S.W.3d 697 (Ky. 2009). In that case, an elderly widow changed her revocable trust to benefit her caregiver under a revised estate plan outlined by the caregiver and effectuated by her new lawyer, who became trustee. After the widow’s death (about 6 weeks after the revised trust), the removed and replaced corporate trustee notified the prior remainder beneficiaries (various charities) of the change of plans. The charities sued, the parties settled, and those who benefited from the new plan sued the trustee for breach of its fiduciary duty that ran exclusively to the settlor not her original beneficiaries. The Kentucky Supreme Court held that the replaced trustee had an affirmative duty to notify the charities of the changes. The holding is controversial because, of course, the settlor was presumptively competent when she modified her trust. See Turney P. Berry, David M. English, Dana G. Fitzsimmons, Jr., “Disclose. Disclose! Disclose? Longmeyer Distorts the Trustee’s Duty to Inform Trust Beneficiaries,” 24-Aug. Prob. & Prop. 12 (July/August 2010).
