Tuesday, September 13, 2016

Full Disclosure (by Kyle A. Krasa, Esq.)

A trust is a relationship of three parties: (1) the Grantor, also known as the “Trust Maker,” who designs, implements, and funds the trust; (2) the Trustee, also known as the “Trust Manager,”who manages the assets of the trust for the benefit of the Beneficiary in accordance with the terms of the trust; and (3) the Beneficiary who benefits from the assets of the trust.

In a Revocable Living Trust where all three parties are the same person or the same married couple, there is no concern as to whether the Trustee is properly managing the assets for the benefit of the Beneficiary in accordance with the Grantor’s instructions.  However, when the Trustee is different from the Grantor and the Beneficiary, it is of paramount importance that there is full disclosure as to how the Trustee is managing the assets to make sure that the Trustee is acting in accordance with the terms of the trust and that the Beneficiary’s rights to the trust’s assets are being enforced.  

The California Probate Code imposes three key duties of disclosure on a Trustee who is managing a trust for a third-party Beneficiary: (1) the duty to account; (2) the duty to provide reports; and (3) the duty to keep beneficiaries informed.

(1) Duty to Account (California Probate Code § 16062)

The Trustee has an affirmative duty to account to the current Beneficiaries of a trust at least annually and upon the occurrence of specified events.

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