From the perspective of the person creating a trust (called the settlor or grantor), a trust may have many advantages: probate avoidance, the ability to exert control over assets left to children and grandchildren, and the security of the knowledge that trust assets will be managed by a competent trustee. For beneficiaries, however, the existence of a trust can be somewhat frustrating. Instead of receiving their inheritance all at once, with no restrictions, they may have to accept it in distributions whose amount and timing they have little control over. While the trustee is there to manage the trust for their benefit, beneficiaries may find that they know less about the trust, its assets, and their rights, than they would like. What information does a trustee owe a beneficiary of a trust?
What information a beneficiary has the right to varies with the type of trust. One common type of trust is a revocable living trust, often simply called a “living trust.” The way it often works is that the settlor creates the trust and funds it with assets. Then he or she acts as both the trustee, managing and distributing those assets, and the beneficiary. It looks a lot like direct ownership of the assets, except that upon the settlor’s death, the assets don’t go through probate and then to heirs.
Instead, a successor trustee takes over and manages the assets for the benefit of remainder or contingent beneficiaries, often children or grandchildren. Depending on the settlor’s instructions in the trust instrument, the assets could remain in trust for a long time. For instance, the settlor might be the original beneficiary, with the settlor’s spouse becoming the current beneficiary upon the settlor’s death, and the couple’s children as remainder beneficiaries who become current beneficiaries upon the spouse’s death.
While the settlor is alive, the trust is revocable. He or she can add or remove beneficiaries, or end the trust altogether. So the answer to the question, “What information does a trustee owe a beneficiary of a trust?” in this case is: very little, because their rights under the trust may never actually come into being. Remainder beneficiaries named in the trust instrument may not even know they are beneficiaries of a trust.
Once the settlor dies, however, the former living trust becomes irrevocable. The rights granted to the remainder beneficiaries (now current beneficiaries) by the trust instrument cannot be taken away (with very limited exceptions). At this point, beneficiaries have rights to more information.
The settlor of a trust can give beneficiaries many rights by including them in the trust instrument. For instance, a settlor could specify that the successor trustee must send all beneficiaries a complete accounting of trust assets at regular intervals. If the trust instrument does not give beneficiaries the right to certain information, their rights come from state law.
A trust beneficiary’s right to information is addressed by Michigan Compiled Laws 700.7814, which describes a trustee’s duty to inform and report. This section of the law provides that a trustee is to keep qualified trust beneficiaries reasonably informed about how the trust is being administered, including “material facts necessary for them to protect their interests.” A trustee must also “promptly respond” to the request of a trust beneficiary for information relating to how the trust is being administered.
How does a beneficiary even know how to request information about the trust? The trustee must, by law, provide this information. Within 63 days after accepting a trusteeship, a trustee must notify qualified beneficiaries:
In the case of a formerly revocable trust that has become irrevocable (such as by the settlor’s death), the trustee has 63 days in which to inform the beneficiaries:
Trustees must respond promptly to a beneficiary’s request for information about the administration of the trust, unless that request is unreasonable. Trustees are entitled to be compensated for their services to the trust, and they must notify qualified trust beneficiaries in advance of any changes in the way they are compensated, or the amount of compensation.
If beneficiaries are entitled to distributions of trust income or principal, they are entitled to a report at least annually. This report should include:
Beneficiaries are free to waive receipt of this report, and they can also take back a previous waiver at any time.
Beneficiaries’ right to information enables them to act upon another right: to petition the court to remove the trustee if they are not properly carrying out their duties, or to terminate the trust altogether under some circumstances.
If you have questions about your rights as beneficiary of a trust, or believe the trustee should be removed, you should speak with an experienced probate and trust administration attorney. We invite you to contact our law office to schedule a consultation.