This post is the fourth in a series of posts that consider possible methods for protecting one’s estate plan from the inattentive or unethical conduct of trustees, family members and others, in order to ensure that the estate plan will be implemented as intended.
As described in the previous post, individual (i.e. non-institutional) trustees often fail to perform their responsibilities in a timely manner. Sometimes this failure is intentional – sometimes not.
The law imposes certain informational requirements on trustees. (See Utah Code §75-7-811.) Trustees have a duty generally to keep beneficiaries fully apprised regarding the trust’s activities. For example, a trustee must send a notice to all trust beneficiaries within 60 days after the settlor of a revocable trust dies, informing the beneficiaries that they have a right to receive a copy of the trust instrument. In addition, the trustee must provide an annual accounting to the beneficiaries on request, showing the trust assets and liabilities, and the receipts and disbursements made during the accounting period. While there is no express requirement that a trustee provide an inventory of the trust assets to the beneficiaries within a specific period of time, the trustee should certainly do so in a timely manner. A trustee’s failure to keep the beneficiaries informed constitutes a breach of the trustee’s fiduciary duties for which the trustee can be removed, with court approval.
For a detailed discussion of revocable living trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah revocable living trusts on this site.
One technique for holding the trustee accountable is to include provisions in the trust instrument that impose specific requirements on the trustee and specific penalties for failure to comply with those requirements. Some examples might include:
(1) The trust instrument could require that the trustee provide a full, detailed inventory of all trust assets within 120 days after the settlor’s death, and could further provide that, if the trustee fails to do so, a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.
(2) As noted above, Utah Code § 75-7-811 requires that the trustee provide the beneficiaries with annual accountings, on request. While the trustee can be removed by the court for a breach of fiduciary duty generally, no specific penalty is prescribed for failure to provide an accounting. But the trust instrument can be more direct. For example, the trust could require that the trustee provide annual accountings to the beneficiaries within 60 days after the end of each calendar year, and could further provide that, if the trustee fails to do so, a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.
(3) The trust instrument could require that the trustee distribute all trust assets to the beneficiaries within one year after the settlor’s death, and that, if the trustee fails to do so (without good reason), a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.
An additional remedy may be to provide that, if the trustee does not perform these responsibilities and meet these deadlines, he may not receive any compensation for his services as trustee.
If the trustee is also a beneficiary, a more extreme approach may be to provide that, if the trustee does not perform these duties and meet these deadlines, his share of the estate is to be reduced.
As a general rule, each party to litigation must bear his or her own legal fees, and a trustee’s legal fees are to be paid from the trust. In egregious cases, a judge can order that the trustee bear his own legal fees, and could require that the trustee pay the beneficiaries’ legal fees, as well, but the standards for determining when it is appropriate for a judge to issue such an order are somewhat vague. The trust instrument, however, could provide that, if the trustee does not perform the duties and meet the deadlines described above, his legal fees in defending against his removal must be paid by him out of his own personal funds. If the trustee is also a beneficiary, the trust instrument could also require that the legal fees of the other beneficiaries be deducted from the trustee’s share of the trust.
The foregoing are just examples of the types of provisions one might want to consider. Of course, such provisions will be more effective if the trustee is aware of them at the time he becomes trustee. It may be advisable, therefore, to take steps to ensure that these provisions are not just buried in the trust boilerplate.
Rust Tippett is the author of this blog post.
Copyright 2014 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.