Providing a Copy of the Trust Obligation

Take-Away: Providing information with regard to a trust to its beneficiaries is statutorily required. Ambiguity exists, however, when trying to determine what trust provisions affect the beneficiary’s interest or when a request for information from a trust beneficiary is unreasonable.

Background: A question that I often get asked is how much of a trust instrument should be provided to the trust beneficiaries, and how much of that trust instrument should be redacted? The obligation to provide information is clear under the Michigan Trust Code. What to provide, and just how much information to provide to the beneficiaries, is not so clear.

Michigan Trust Code: The key provisions of the Michigan Trust Code (MTC), MCL 700.7814 (1) and (2), follow:

Duty to Inform and Report

1. A trustee shall keep the qualified trust beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a trust beneficiary’s request for information related to the administration of the trust.
2. A trustee shall do all of the following:

1. Upon the reasonable request of a trust beneficiary, promptly furnish to the trust beneficiary a copy of the terms of the trust that describe or affect the trust beneficiary’s interest and relevant information about the trust property.
2. Subject to subsection (6) within 63 days after accepting a trusteeship, notify qualified trust beneficiaries of the acceptance, of the court in which the trust is registered, and of the trustee’s name, address, and telephone number.
3. Subject to subsection (6), within 63 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, notify the qualified trust beneficiaries of the trust’s existence, of the identity of the settlor or settlors, or the court in which the trust is registered, if it is registered, and of the right to request a copy of the terms of the trust that describe or affect the trust beneficiary’s interest.
4. Notify the qualified trust beneficiaries in advance of any change in the method or rate of the trustee’s compensation. 

Beneficiaries: The trustee’s duty to provide information is thus distinguished between a qualified trust beneficiary and a mere trust beneficiary who requests information. Thus, the definitions of these beneficiaries control, to a degree, who is entitled to information, and what information is to be provided by the trustee. Unfortunately,  these technical definitions are not easily distinguished, even though they direct beneficiary’s  entitlement to information with regard to the trust and its administration.

Trust Beneficiary: A trust beneficiary is defined as a person to whom one or both of the following applies; (i) the person has a present or future beneficial interest in a trust, vested or contingent; and/or (ii) the person holds a power of appointment over trust property in a capacity other than as a trustee or trust director. [MCL700.7103(l).]

Qualified Trust Beneficiary: A qualified trust beneficiary means a trust beneficiary to whom one or more of the following apply on the date the trust beneficiary’s qualification is determined: (i) the trust beneficiary is a distributee or permissible distributee of trust income or principal; (ii) the trust beneficiary would be a distributee or permissible distributee of trust income or principal if the interests of the distributees under the trust described in subparagraph (i) terminated on that date without causing the trust to terminate; and  (iii) The trust beneficiary would be a distributee or permissible trustee of trust income or principal if the trust  terminated on that date. [MCL 700.7103(g).] [I find myself moving my lips whenever I read this not-so-simple definition of a qualified trust beneficiary!]

Permissible Distributee: While not defined in the MTC, Michigan courts have defined a permissible distributee, as used in the definition of qualified trust beneficiary, to mean a person who is permitted to receive trust property from the trust other than as a creditor or purchaser who is not entitled to receive trust property. In re Rhea Brody Living Trust, 325 Mich App. 476 (2018).

Reasonable  Inquiries: A trust beneficiary’s request must be reasonable. Which, of course, always can be subject to debate. Since reasonableness is always subjective, it would be best for the trustee to ask that any such request be reduced to writing, and if that request is ultimately deemed to be unreasonable by the trustee, the trustee needs to document its analysis leading to its conclusion that the request was unreasonable under the circumstances. I suspect that few inquiries or requests made by a trust beneficiary will be deemed unreasonable unless a large burden is placed on the trustee to gather the information, or the cost to comply with the request is prohibitive.

Copies of Trust Instrument that Affect a Beneficiary’s Interest: The trustee is required to only provide a copy of the terms of the trust that describe or affect the trust beneficiary’s interest, rather than the entire trust instrument. Yet many trust instruments provide for the creation of multiple trusts, e.g., a marital trust, a credit shelter trust, a GST exempt trust, etc. all under the same trust document. While a trustee might be inclined to deliver only those provisions of the trust instrument that contain those distributions provisions that apply to a trust beneficiary, the danger is that other provisions of the same trust instrument may affect (directly or indirectly) that beneficiary beyond its dispositive provisions. Consequently, the best way for a trustee to comply with MCL 700.7814(1)(a) is to provide either the entire trust instrument to the trust beneficiary, or a copy of the trust instrument with selected’ irrelevant’ provisions of the trust redacted, e.g., specific bequests or devises to other named individuals. Otherwise the trustee is at risk for nor providing portions of the trust that might later actually be relevant to the trust beneficiary’s interest or its protection.

Conclusion: A trustee’s duty to communicate with the trust beneficiaries is fundamental to its fiduciary duties. Which is probably why it is best to provide a copy of the entire trust if that is possible. As to follow-up inquires and requests for information made by a trustee, the trustee’s response always turns on whether that request is reasonable, which in turn will call for the exercise of judgment under the circumstances, and more importantly the trustee documenting not only the inquiry or request, but also the reasons why the trustee concluded the request/inquiry was unreasonable under the circumstance. Alternatively, the trustee can always petition the probate court for instructions in how to respond, but that will then entail expense, time, publicity, and probably some level of hostility by the beneficiary directed at the trustee.