Keith,

If someone with a revocable living trust dies, is it the attorney’s job to identify all the assets, or is that the job of the trustee?

Are beneficiaries of the estate always supposed to be notified in writing, and if so whose job is that – the trustee’s or the attorney’s?

Roseanne

ROSEANNE,

Let’s be clear: The attorney involved in the administration of a trust almost always works for the Trustee. The Trustee works for the beneficiaries of the trust.

Therefore, the lawyer, the accountant, or perhaps the appraiser hired to assess property values, for example, are just hired help. The Trustee has the duty to administer the trust and to report to the beneficiaries, although, obviously, the Trustee may hire professionals to help him or her do their job properly.

Most states have at the very least a requirement that the Trustee keep the current beneficiaries – and usually named residual beneficiaries — “adequately informed” of the status of all irrevocable trust accounts at least once each year. It is generally held that to be “adequately informed”, a beneficiary is entitled to a copy of at least that portion of the trust pertaining to him or her.

Usually the annual report must be in writing, and organized in a way that the beneficiaries can obtain a meaningful sense of what is going on. The report should detail the nature and value of all assets at the beginning and end of the reporting period, with an explanation of all expenditures.

There is a HUGE exception here. If, as is usually the case, the Settlors (usually mom and dad – the people who created the trust) are also the current beneficiaries of a revocable living trust, they are under absolutely no obligation to report to the kids or to any other residual beneficiaries while they are both alive. The reason is that the Settlors have the right to change the trust anyway at will, or even to throw the trust out. That’s why it’s called a revocable living trust.

However, when one spouse dies, frequently some portion of the revocable living trust becomes irrevocable – usually through a by-pass or credit shelter trust provision in the original document. This type of sub-trust is designed to preserve the estate tax exemption of the first spouse to die while permitting the remaining spouse to access earnings and principal as necessary to maintain their health, education, maintenance and support.

Assets in an irrevocable by-pass or credit shelter trust are subject to reporting requirements to the residual beneficiaries, since those beneficiaries will eventually have an interest in whatever is left there after the remaining spouse, or current income beneficiary, dies.

Some states have adopted something called the “Uniform Trust Code” (UTC), which in my opinion imposes Draconian reporting requirements on the surviving spouse (who is usually named trustee of the credit shelter trust). In 2005 the Arizona Legislature unanimously passed a version of the UTC. Other Arizona attorneys and I were so upset with its provisions that we lobbied for its repeal. Almost exactly a year later the legislature voted unanimously to repeal the Arizona UTC!

Back to the lawyer: He or she is hired help, and he typically represents the trustee. Because lawyers like to split hairs, some argue that an attorney who prepares the trust represents the beneficiaries, and should not represent the Trustee, while the attorney retained by the trustee represents only the trustees and not the beneficiaries.

There is even an Arizona Supreme Court decision that addresses this issue.

In my opinion – and our law firm prepared hundreds of complex trusts – this is almost always a distinction without a difference. Most good estate planning attorneys insert provisions in the trusts we prepare allowing us to serve the beneficiaries and the trustee provided the trustees are the original settler (creators of the trust). 99.999% of the time this works fine. The other .001% of the time, we – the lawyer – get sued for a supposed conflict of interest – usually by some jerk of a beneficiary, helped by a low-end lawyer, who wants to bust the trust and get to mom and dad’s money before either or both of them reach room temperature.

If you are a beneficiary who thinks your rights are not being respected – and based on your question I suspect you are – first write a reasonable letter to the trustee asking that they please keep you adequately informed by providing an accounting within, say, 30 days.

If they refuse, then lawyer up.

–Keith
From about 450 miles NW of Majuro, The Marshall Islands

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