Trustees have a duty to share trust information with beneficiaries. The nature and extent of the duty to inform is not well defined in the Texas Trust Code, however, and there is little case law on point. There is slightly more guidance with regard to the duty to account, which is a subpart of the duty to inform, although many questions remain and can pose significant problems for trustees.
When considering a trustee’s fiduciary duty, most practitioners turn to the Texas Trust Code first. However, the thoughtful practitioner will notice that the common law duty to inform predates the Trust Code and is broader than the statutory duty to account. Also, the Trust Code directs trustees to “perform all of the duties imposed on [them] by the common law,” so an examination that is limited to the Trust Code may be incomplete.
A broad array of people are generally entitled to trust information and may include “a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust.”
Trust beneficiaries need information to protect their interests. For a beneficiary to hold a trustee accountable, the beneficiary must know of the trust’s existence, the beneficiary’s interest in the trust, the trust property, and how that property is being managed. Trustees have a duty to provide this information to beneficiaries. This duty to inform is independent of the trustee’s duty of care. Although a trustee holds legal title to trust property, that property is held for the benefit of the beneficiary. Similarly, the books and records of the trust belong to the trust estate. As such, it stands to reason that the beneficiaries should have access to them as well.
On the other hand, settlors may not want their children to know about assets in their trusts for fear that they might become “trust fund babies,” and information sharing may be a security concern in the modern world. Formal accountings, in particular, are burdensome on both trustees and trust assets. A typical accounting takes many hours to prepare. A trustee may be able to do much of the initial work to prepare the accounting, but significant time spent by attorneys, accountants, and other professionals will likely also be required, and the related fees will usually be borne by the trust.
Additionally, the duties to inform and account cannot be waived in a trust instrument. If this were possible, no trustee would serve unless such a waiver were present. However, the duties may be limited in Texas to so-called “first-tier beneficiaries” who are generally entitled to distributions, either presently under the trust’s terms, or hypothetically, if the trust were to terminate. By restricting the non-waivable provisions to first-tier beneficiaries, settlors can minimize frivolous pestering by contingent remainder beneficiaries.
Even where beneficiaries are entitled to information, caution is advised to those seeking it. If a trust is revocable by, or grants a power of appointment to, someone who might be perturbed by such request, the requesting party might find herself written out of the trust!
The common law duty to inform and the statutory duty to account are complicated elements of Texas law. Farrow-Gillespie Heath Witter, LLP has helped many beneficiaries gain the information they need about their trusts. We have also advised many trustees through the accounting process. If you are in either position, we would be glad to talk with you about your rights or responsibilities and the potential risks you face.
Christian S. Kelso, Esq. is a partner at Farrow-Gillespie Heath Witter LLP. He draws on both personal and professional experience when counseling clients on issues related to estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law. He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law.