The Trustee and the Remainderman: The Trustee's Duty to Inform
26 Pages Posted: 8 Aug 2011 Last revised: 20 Oct 2011
Date Written: August 8, 2011
Much has been written recently of high-profile financiers and lowly con men taking advantage of lay investors. Part of the reason these scandals go undetected for so long is the lack of transparency inherent in some of the investment vehicles and the lack of curiosity or sophistication of the investors. Trusts generally are thought to be immune from such scandal because of the fiduciary duty required of a trustee. A fiduciary duty, after all, is the highest level of care that can be imposed on a caretaker of assets. But what is to stop a trustee from looting a trust or abusing its powers?
The primary roadblock is the trustee’s duty to inform. A beneficiary can monitor a trustee’s actions - including investments, disbursements, and expenses - because the trustee must make its actions transparent to the beneficiary. If a trustee’s actions are suspect, in theory a beneficiary can catch the trustee’s indiscretion before much damage is done to the trust’s assets. But to which beneficiaries does the trustee truly owe this duty? Is this a duty the trustee must perform affirmatively, or can the trustee rely on beneficiaries to request this information on their own? This Article first explores the history of a trustee’s duty to inform and describes the types of beneficiaries found in common law, the Uniform Trust Code (UTC), and the Restatement (Third) of Trusts (Restatement). The Article defines the trustee’s duty to inform as described in the UTC and the Restatement, and analyzes the policy reasons behind it, as well as the pitfalls associated with neglecting this duty. The Article explores the balancing act that a trustee must perform, weighing both practicality and fiduciary duty concerns, and concludes that a trustee owes to vested beneficiaries (current and remaindermen) an affirmative duty to provide information regarding the day-to-day administration of the trust. The trustee owes a non-affirmative duty to contingent beneficiaries and must provide information upon request.
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