Anderson Banta Clarkson, PLLC: Can a Trustee Keep Trust Matters Private from Beneficiaries?

What You Should Know About Trust Beneficiary Notices and Trustee Reports
by Tom Bouman

1.        May a Trustee keep all trust matters private from the beneficiaries?

No. Under Arizona law, the manager of a trust (“trustee”) has a duty to inform and report to the beneficiaries of the trust. The duty to inform includes an initial requirement to notify the beneficiaries within 60 days after a formerly revocable trust becomes irrevocable (usually after the trust creator’s death) or within 60 days after the trustee accepts the duties of trusteeship. The duty to report includes an annual requirement to deliver a trustee’s report to current beneficiaries.
The notice and reporting requirements do not apply to a revocable living trust provided the trust creator is alive and serving as trustee.
The trustee also has a general duty to keep the qualified beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for the beneficiaries to protect their interests. The definition of “qualified beneficiary” includes both current beneficiaries, and the contingent beneficiaries who would inherit if a current beneficiary died or the trust was dissolved.
There are two exceptions to this general duty. First, the trust document might include a statement to the opposite effect, instructing the trustee, to the extent permitted by law, to refrain from distributing information about the trust to the beneficiaries. Second, the trustee may decide that a beneficiary’s request for information is unreasonable under the circumstances.

However, not all information may be withheld. Regardless of what the trust document says about the subject, the trustee must provide a copy of the portions of the trust document that are necessary to describe the beneficiary’s interest to any beneficiary who makes the request. In addition, the trustee must provide a trustee’s report to current beneficiaries, and other beneficiaries who request it, at least annually. This report serves to provide a minimum amount of essential information about the trust to the beneficiaries. Arizona law does not permit the creation of a secret trust fund for a beneficiary.

2.        What are the requirements of a Trust Beneficiary Notice?

The trustee must deliver an initial trust beneficiary notification to all qualified beneficiaries of the trust. The notice must (1) state the trustee’s name and contact information; (2) disclose the beneficiary’s right to request a copy of the portions of the trust document that are necessary to describe the beneficiary’s interest (generally, a copy of the entire document); and (3) disclose the beneficiary’s right to receive or request a trustee’s report at least annually.

3.        What are the requirements of a Trustee’s Report?

A trustee’s duty to report is met by delivering a trustee’s report to each current beneficiary of an ongoing trust, and other beneficiaries who request it, at least annually. A current beneficiary is someone who is able to receive distributions from the trust at that time – whether mandatory or in the discretion of the trustee. Other beneficiaries are entitled to a trustee’s report upon request.
The annual trustee’s report must include an up-to-date list of trust assets and liabilities accompanied by a ledger showing all receipts and disbursements during the prior reporting period, including the source and amount of the trustee’s compensation (if any). There is no statutory form for this report, although it should be detailed enough to satisfy the curiosity of a reasonable beneficiary.

4.        What is the format of a Trustee’s Report?

Unless the trustee’s report is intended for use in a court proceeding, the report need not use any prescribed format. For the disclosure of trust assets, a simple Word document or Excel spreadsheet with a list of assets and their current values, if feasible, is adequate. A similar list could be used for liabilities and trustee compensation, if needed.

For the disclosure of receipts and disbursements, an Excel spreadsheet is commonly used to supplement the regular statements from a financial institution, although a handwritten ledger also works fine. The spreadsheet or ledger should track each transaction into and out of each account by (1) date, (2) payor/payee, (3) description, (4) check number, if appropriate, and (5) running balance. A trustee may wish to include a copy of the most recent statement from each financial institution holding trust assets in order to back up the integrity of the report.

The report may be delivered by first class mail, personal delivery, delivery to last known place of residence, or by e-mail if the address is valid. Notices are not required for a beneficiary who cannot be located by the trustee after reasonable effort.

About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.