The Basics
A trust is an effective tool in estate planning. To create a trust, a person called a grantor specifies which assets go into the trust. The grantor then designates another person called the trustee to oversee the trust for the person called the beneficiary who will receive those assets.
New Jersey law requires trustees to keep beneficiaries reasonably informed about:
- How the trustee is administering the trust, and
- Of any material facts the beneficiaries need to protect their interests.
Question: What does “reasonably informed” mean?
Answer: “Reasonably informed” means that the trustee should give beneficiaries enough information about the trust so they can:
- Enforce their rights.
- Prevent a breach of the trust.
- Obtain redress for such a breach.
- Make sure the trustee is doing their job right.
- Catch problems if they happen.
- Stand up for their rights if needed
- In short, it means that beneficiaries know enough to protect themselves and their interests.
- However, the trustee doesn’t have to tell beneficiaries every tiny detail.
- This duty would ordinarily be satisfied by providing the beneficiary with a copy of the annual report.
Question: What facts are material?
Answer: “Material facts” are the important pieces of information that could affect a beneficiary’s trust benefits. Think of “material” as meaning “important enough to matter.”
Examples of material facts include:
- How much money is in the trust
- What investments the trust owns
- How much money went out and why
- How the trustee is getting paid
- Advance notice of transactions involving real estate, closely held business interests, and other assets that are difficult to value or to replace
- Big decisions the trustee is making
- Changes to how the trust is managed
- Problems with trust property
Who is Entitled to This Information?
Only “qualified beneficiaries” are entitled to be reasonably informed of the material facts. Qualified beneficiaries are people who:
- Can get money or property from the trust right now.
- Will get something if certain things happen.
- Would get something if the trust ended today.
What Information Must Trustees Share?
The Basics
- Trustees must always share basic information.
- Trustees must promptly respond to a beneficiary’s request for information when it’s related to the administration of a trust.
- Upon request of a beneficiary, the trustee shall promptly furnish a copy of the trust to the beneficiary.
Detailed Reports
- A trustee may decide on her own to provide the beneficiaries with a report of the trust property, its liabilities, receipts, and disbursements. That may include the source and amount of the trustee’s compensation, a listing of the trust assets, and, if feasible, their respective market values.
- These reports should include the following:
Other Items
- What the trust owns (examples include houses, stocks, or bank accounts)
- What the trust owes (any debts or bills)
- Money coming in (such as rent or dividends)
- Money going out (i.e., payments to beneficiaries or expenses)
- How much the trustee gets paid (and the payment source)
- How much everything is worth (if the trustee can figure it out)
Timing of Reports
Trustees are required by law to provide annual reports. These reports should give details about trust assets, liabilities, receipts, and disbursements. That means that, once a year, a beneficiary should receive a summary of the trust’s activity. This could be as simple as the trustee providing copies of the trust’s income tax returns and monthly brokerage statements.
Fiduciary Obligations: Trustees have fundamental fiduciary duties, including acting in good faith, with prudence, loyalty, and impartiality. This means they must manage trust assets for the benefit of all beneficiaries, avoid conflicts of interest, and exercise the same care a reasonably prudent person would under similar circumstances.
What Can Beneficiaries Do if the Trustee Does Not Comply?
If a trustee isn’t telling the beneficiary what they need to know, beneficiaries have options:
Ask for an Accounting. If the trustee does not furnish legally required information to the beneficiary, the beneficiary may ask the court for an accounting.
Time Limits for Complaints. Trustees are protected if they do provide adequate reports. Once six months have passed after the trustee “sent a report that adequately disclosed the existence of a potential claim for breach of trust,” that beneficiary may not commence a proceeding against the trustee for breach of trust. N.J.S.A. §3B:31-74 a.
What does it mean? If a beneficiary gets a report from the trustee and doesn’t complain within six months of receipt, she may lose her chance to bring a lawsuit to rectify any problems mentioned in the report. Factors that may affect this timing include:
- The beneficiary turning 18.
- The beneficiary learning that a trust exists.
- The beneficiary learning of their status as a beneficiary.
Important Things to Remember
- This reporting requirement does not apply to revocable trusts.
- Judges take these rules seriously and will step in when trustees don’t follow them.
- Trustees must keep good records.
Need Help with Developing Your Estate Plan?
Contact an experienced Sussan Greenwald & Wesler attorney for assistance at 609-409-3500.