Trustee Reporting and Communication

Take-Away: Reporting to and communicating with trust beneficiaries is one of the principal duties of a trustee. Those responsibilities could be altered if Michigan decides to make changes to its Trust Code to permit quiet trusts.

Background: One of the big ‘eye-openers’ I have had in the past five years since leaving the practice of drafting trusts and entering into the world of administering trusts is the amount of time and effort that trustees must expend in recordkeeping and communicating with trust beneficiaries. When I drafted trusts I knew that trustees had the responsibility to provide annual accountings to trust beneficiaries, but I did not think of much else required by the trustee. I never dreamed of the amount time and attention to detail that is required just to communicate with beneficiaries pretty much on a daily basis, and how those communications must then be documented and made a part of the trustee’s files. I wonder how these reporting and communication responsibilities will be altered if Michigan ever decides to amend its Trust Code to authorize the use of a quiet trust.

Quiet Trusts: If a settlor fears that a beneficiary’s knowledge of wealth held in an irrevocable trust can result in disincentive for the beneficiary to achieve their own success, the settlor might want to eliminate the trustee’s duty to inform the beneficiaries of the existence of the trust for a period of time, hence the desire to create a silent trust. Consider the scope of trustee’s current duties to inform and report to trust beneficiaries.

Duty to Inform and Report: A trustee is required to keep qualified trust beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Accordingly, a trustee is required to promptly respond to a trust beneficiary’s request [note: this is not limited to a qualified trust beneficiary] for information related to the administration of the trust. [MCL 700.7814(1).] This duty can be modified by the terms of the trust. I wonder how many trusts that are drafted distinguish between providing information and material facts to qualified trust beneficiaries from mere trust beneficiaries?

Trust Beneficiary: The statutory definition of trust beneficiary is much broader than the statutory definition of a qualified trust beneficiary.

A qualified trust beneficiary is defined at MCL 700.7103(g) to include a trust beneficiary who is a distribute or permissible distributee of trust income or principal, or a beneficiary who would become a distribute or permissible distribute if prior distributees or potential distributees terminate without the termination of the trust, or the trust beneficiary who would be distribute or permissible distribute upon the termination of the trust.

A trust beneficiary to whom the trustee must promptly respond to questions or requests for information includes a person who has a present or future beneficial interest in a trust, vested or contingent, and a person who holds a power of appointment over property held in the trust, other than a power held in the capacity as trustee or trust director. [MCL 700.7103(l).]

Copy of Trust: Upon the reasonable request of a trust beneficiary the trustee must promptly furnish to that beneficiary as copy of the terms of the trust that affect that trust beneficiary’s interest and relevant information about the trust property. Within 63 days after accepting the trust, the trustee must notify qualified trust beneficiaries of the acceptance, where the trust is registered (if registered) and the trustee’s name, address, and telephone number. Within 63 days after the date the trust becomes irrevocable, i.e. when the trustee first learns that the trust has become irrevocable, the trustee must notify qualified trust beneficiaries of the trust’s existence, the identity of the settlor, and of their right to request a copy of the terms of the trust that describe or affect the trust beneficiary’s interest. [MCL 700.7814(2)((a)-(c).] These duties cannot be modified or eliminated under the Michigan Trust Code. [MCL 700.7105(2)(i).]

Account to Distributees: A trustee must also send to the distributees or permissible distributees of trust income or principal, and to other qualified or nonqualifed trust beneficiaries who request it, at least annually and on the termination of the trust, a report of trust property, liabilities, receipts and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust property and, if feasible, the assets’ respective market values. The trustee is also given the discretion to provide these reports to any trust beneficiary. [MCL 700.7814(3).]These duties can be modified or eliminated by the terms of the trust instrument. Note, however, that if the trustee is excused by the trust instrument from its duty to account, it will not receive any benefit from the shorter limitations period provided in the Michigan Trust Code. [MCL 700.7905(1).] In addition, the probate court always possesses the power to overrule this excused duty to account and order the trustee to providing accounts and information to individuals and beneficiaries who are otherwise excused.

Restatement (Third) of Trusts: Much like the Uniform Trust Code upon which much of MCL 700.7814 is based, the Restatement (Third) of Trusts, the purported summary of the common law with regard to trusts, imposes reporting requirements on trustees, but the requirements under the Restatement are not as extensive. Like MCL 700.7603(1), the Restatement also makes it clear that the trustee of a revocable trust generally owes duties, including reporting requirements, only to the settlor. However, the donee of a presently exercisable general power of appointment is also treated like a settlor with respect to the duties owed by the trustee. [Restatement (Third) of Trusts, Section 74.] In addition the Restatement also provides that on occasion, a trustee’s duty to provide information can extend to a donee of a power of appointment or a person granted the power to: (i) veto or direct acts of the trustee, e.g. a trust director or a distribution committee. [Restatement, Section 82.] The Restatement does noted that while a settlor can, to a degree, modify the trustee’s duty to communicate and account with regard to the trust, a beneficiary is always entitled to require information reasonably necessary to enforce his or her rights and to prevent a breach of trust; as a result, the trustee’s duty to respond is not subject to modification. [Section 82(1)(a)-(c).]

Reported Decisions: Unlike other sections of the Michigan Trust Code, there have been quite a few Michigan court decisions that address, in some fashion, the trustee’s duty to inform and report under MCL 700.7814.

Relevant Notices: All parties who may be affected by a mediation with regard to the trust must be given notice of a scheduled mediation. In re Estate of Brown, No. 342485 (April 9, 2020).
Revocable Trusts: After she became incapacitated, the settlor’s daughter assumed the role of trustee. The daughter did not give notice of her acceptance, nor did she provide any information with regard to the administration of the trust to the trust beneficiaries until after the settlor’s death. She was sued alleging her failure to provide information as required by MCL 700.7814, dating back to the time the daughter commenced serving a trustee. The Court found that the beneficiaries did not become qualified trust beneficiaries [entitled to information] until after the settlor’s death. Thus, the beneficiaries were not entitled to notices and information under 7814 until after the settlor’s death. The Court did note, though, that the trustee of the revocable trust was required to keep the complaining beneficiaries reasonably informed with regard to the trust’s administration even though 7814. [MCL 7007603(2).] In re Massie Family Trust, No. 326069 (MAY 19, 2016).
No Specified Form for Accountings: MCL 700.7814 does not mandate that a trust accounting be in any particular form. In re Ina J. Craven Trust, No.334879 (December 19, 2017).
A Year Delay in Responding to Requests: A trustee failed to meet his duty to promptly respond to a beneficiary’s request for information with regard to the trustee’s actions that took place while the settlor was alive, by waiting more than a year to respond, and only then responding when the beneficiary initiated proceedings for an accounting. In re Estate of Poston, No. 331772 (July 25, 2017).
Written Notices Not Required: The trustee failed to provide a written notice with regard to MCL 700.7814(2)(b) and (c). The Court refused to read into the Michigan Trust Code that the trustee’s notice given to trust beneficiaries must always be in writing. In re John D. Dospoy Revocable Living Trust, No. 321304 (July 14, 2015).
Notice of Intent to Charge Fee: The trustee who decided only after serving for an extended period to start to charge a trustee fee, but who failed to notify the trust beneficiaries of the trustee’s intent to charge a trustee fee, could only collect a fee for services rendered after the notice of intent to charge a fee was given to the trust beneficiaries. That notice to charge a fee had to be given in advance. In re Stout Trust Agreement, No. 313063 (2014).
Missing Assets Presumed to Cause Trust Beneficiaries’ Loss: A trustee’s failure to properly account for the disposition of trust funds presumptively established a loss by the trust beneficiaries. In re Caring Trust Agreement, No. 302604 (May 29, 2012.)

Conclusion: A trustee’s statutory duty to inform, account, respond to inquiries, and provide notices is much more comprehensive than appears on the surface. Candidly, most individual trustees are not up to this task, either through their inclination to just ‘do enough to get by’ or because of all of the distractions in their personal lives. As the discussion begins to center on the prospect of Michigan authorizing a quiet trust regime that would remove from the trustee many of these disclosure and reporting requirements, think about the importance of timely keeping trust beneficiaries informed of the trust’s administration and their need to be able to protect their interests in the trust. Deliberately ‘keeping someone in the dark’ usually breeds distrust and the belief that they are ‘up to no good’ which is not conducive to a healthy and respectful trustee-beneficiary relationship.