We hate to say it, but beneficiaries should never blindly trust their trustees. Good beneficiaries pay attention to the process.
The trustee-beneficiary relationship works properly only if beneficiaries are engaged and looking out for themselves. Yes, the trustee legally owes duties to the beneficiaries a whole bunch of ways. But it’s the beneficiaries who must hold the trustee accountable. In most cases, there’s no other oversight. Last week, we wrote about being the beneficiary of a special needs trust. The main point in that article is true here: Beneficiaries can and should communicate with the trustee!
One of the “benefits” of a trust is that there’s no court proceeding and no public disclosure, even after the death of the trust’s creator (“the trustor”). Trusts are administered privately, and (usually) only those named in the trust as beneficiaries receive information about what’s going on with the administration.
Beneficiaries and Information
Do you think you might be a beneficiary of a trust? In Arizona, beneficiaries are to receive notice within 60 days of the trust becoming irrevocable. That’s often the death of the trustor, but it could be some other time. Or, if it’s a joint trust, it might not be until the surviving trustor’s death. (Yep, if stepmom is still alive, it might not be time.)
These notices should include: the trust’s existence, the identity of the trustor, the trustee’s name and contact information, and the fact that the beneficiary may request a copy of portions of the trust and that they have a right to an annual report of trust assets and liabilities. A.R.S. § 14-10813.
If you think you’re a beneficiary and receive no notice, it’s possible you are not a beneficiary. (Cut out?) Or it might mean the trustee is not doing their job. A starting point: Ask questions. You can contact the trustee and ask about the administration. You may be told you have no right to information. That may mean you are not a beneficiary.
Seeking the Basics
If you don’t know who the trustee is, there are some ways to find clues. Ask family members. If you don’t know them, they might be listed in an obituary. If there’s real property, a search of the county recorder’s website might turn up a deed or notice of change of beneficiaries with useful names.
A Trustee also can (but doesn’t have to) publish notice to creditors, which limits the time people who believe the trust owes them money can come forward. A Google search might turn up such a notice, and the trustee and/or their attorney should be identified.
In most circumstances, simply raising questions leads to action. Trustees are required to respond to beneficiaries’ reasonable requests for information. Many family member trustees don’t fully understand the job, and beneficiary inquiries can prompt them to start research or hire an attorney to help.
Good Beneficiaries Stay Alert
Even if the administration starts out smoothly with proper notices and disclosures, good beneficiaries stay alert.
If you receive correspondence from the trustee, read it. Read the enclosures. Is there anything you don’t understand? Don’t be afraid to ask questions. Note, however, that the trustee and their attorney can charge a fee for the time it takes to answer. Further, the trustee’s attorney is not your attorney and their ability to answer questions is limited to the trust administration. They can’t advise you about your rights. If you really want to ensure you understand the process, hire (and pay for) your own attorney to help you make sense of the documents, the process, and your rights.
For beneficiaries, there are certain times you may want to ask for information. Be mindful of the “reasonableness” standard.
At the beginning: Unlike in a probate proceeding, in a trust administration, there’s no requirement to disclose an initial inventory. It’s probably a reasonable request. If you don’t ask, you may not find out until the trust terminates or a year later, whichever comes first.
Along the way: Arizona law requires trustees to report to the beneficiaries annually and at the termination of the trust. Mark your calendar a bit more than year out, and if you don’t receive a report, start asking questions.
Sweat the Details
If you get a report, read it. Are assets missing? Do the numbers make sense? Are they reasonable? Is there anything you don’t understand? Don’t be afraid to ask questions.
It’s important to review the reports. If there’s something amiss, don’t wait to get to the bottom of it. Your time to take action is limited to one year after the date a trustee report was sent. That assumes the report “adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.” A.R.S. § 14-11005. If the trustee fails to include that language, the statute of limitations for breach of trust is two years after the first of 1) the removal, resignation, or death of the trustee; 2) the termination of the beneficiary’s interest in the trust; or 3) the termination of the trust.
Be Mindful of Reasonableness
As mentioned above, trust administration is a private process. There’s no official timeline, but it should be reasonable. And what is reasonable differs depending on the complexity of the trust and the assets involved. If nothing has happened in years, make some noise.
Toward the end of an administration, beneficiaries typically receive a final trustee report (or accounting), proposal for distribution, and waiver of liability for the trustee and maybe their counsel.
The trustee may ask you to sign and return paperwork before making distributions. That’s normal. But again, if you have concerns, an attorney can help bring peace of mind. It’s also normal for the trustee to retain a reserve for final taxes and expenses. The reserve also must be reasonable, and that varies under the circumstances. Again, pay attention to the numbers.
Once the trustee files the final tax return (or the statute of limitations thereon has run), he or she will make final distributions. Often, a trust administration ends with a whimper, and there’s no formal termination or closing statement.
Good beneficiaries will have been tracking the progress and can endorse the final payment with peace of mind.