I, along with Cathy Priebe of Certus, had the privilege of being part of a collaborative effort to re-write Wisconsin’s Trust Code. The new law became effective on July 1, 2014, and was based heavily on the Uniform Trust Code. In our work, we carried through rather innocent sounding phrase that ended up putting the spotlight on trust accounting provisions in trusts. The phrase was that trustees have a duty to keep beneficiaries “reasonably informed about the administration of [a] trust.” Certainly not an offensive set of words — but the implications of this “new” duty have proved to be very important to almost everyone that I’ve talked to about the issue.
Focusing on the highlights, the conversations that we are now having with clients revolves around when is the right time to communicate with beneficiaries about finances and when is it preferable to hold back some or all of the information. And the conversation typically considers such communications at least three contexts:
During the Survivor’s “Overlife”
In a traditional estate tax plan for a married couple, assets often pass to a trust for the benefit of the surviving spouse and descendants. Those descendants are beneficiaries of the trust, but those couples may be surprised that their children or grandchildren (or their step-children or step-grandchildren) may have a legal right to know how much is in the trust and how monies are spent. While there can be many reasons for disclosure, whether to disclose or not should be a choice for the one establishing the trust.
During a Primary Beneficiary’s Lifetime
If there are continuing trusts, usually a child (or other primary beneficiary) and his or her descendants are beneficiaries of a particular trust. Again, there can be reasons for disclosure. But since communication about the nature and extent of wealth can have both positive and negative consequences, whether disclosures should be made to secondary beneficiaries should be thoughtfully considered. It may also be preferable to view this as a parenting decision best left to the primary beneficiary.
During Young Adulthood
It seems almost universal that people prefer trustees have the discretion to withhold information from financially immature, but legally adult, beneficiaries. A 19-year old with a significant trust (or perhaps a modest trust whose value is overestimated by the young adult beneficiary) may make different choices about education, career, vocation, etc., depending on whether he or she has full, partial or no information about what may be set aside in the trust.
The point isn’t that there is a right or wrong way to deal with the dissemination of financial information. Rather, since we manage the flow of information to our children and grandchildren based on their capacity to absorb the information in a positive manner, shouldn’t our trusts — which are, at least in part, communication tools — do the same? Recognizing that the above was not typically an area of focus by estate planners in Wisconsin generally, you may wish to consider adjustments to your trust plan.
If you have further questions, please contact the author or your Certus attorney.