The Trustee's Duty to Inform Under the Colorado Probate Code
| Publication year | 2009 |
| Pages | 69 |
2009, November, Pg. 69. The Trustee's Duty to Inform Under the Colorado Probate Code
November 2009
Vol. 38, No. 11 [Page 69]
Trust and Estate articles are sponsored by the CBA Trust and Estate Section. Topics include trust and estate planning and administration, probate litigation, guardianships and conservatorships, and tax planning.
Coordinating Editors
David W. Kirch, of David W. Kirch, P.C., Aurora-(303) 671-7726, dkirch@dwkpc.net; Constance D. Smith, of Rothgerber Johnson & Lyons LLP-(303) 623-9000, csmith@rothgerber.com
About the Author
Kevin D. Millard is a partner in Chorney & Millard, LLP, Denver, and a former chair of the CBA Trust and Estate Section-(303) 792-5048, kmillard@chorneymillard.com.
This article provides an overview of the trustee's duty to inform under the Colorado Probate Code. The duty is fundamentally mandatory, but the exact boundaries of the duty have yet to be delineated.
Until recently, little had been written about the trustee's duty to inform. Interest in this issue has increased during the last few years, driven in part by the Restatement (Third) of Trusts(fn1) (still in progress), and the Uniform Trust Code(fn2) (promulgated in 2000), both of which deal explicitly with this topic, and in part by recent case law. The heightened interest also is evidenced by the number of articles published during the last several years on the duty to inform.(fn3)
The Colorado Requirements-Overview
The trustee's duties concerning notice and reports to beneficiaries are set out in § 15-16-303 of the Colorado Probate Code (CPC).(fn4) There are four requirements: (1) a general duty to keep beneficiaries informed, and more specific duties concerning (2) notice that a trust has been registered, (3) providing a copy of at least portions of the trust instrument to beneficiaries, and (4) providing accountings.
General Duty
The trustee's general duty is to "keep the beneficiaries of the trust reasonably informed of the trust and its administration."(fn5) The CPC's definition of "beneficiary" is extremely broad. The term:
Although this general duty runs to a very broad class of beneficiaries, the scope of the duty is constrained in that the duty is to keep the beneficiaries reasonably informedincludes a person who has any present or future interest, vested or contingent, and also includes the owner of an interest by assignment or other transfer; as it relates to a charitable trust, ["beneficiary"] includes any person entitled to enforce the trust. . . .(fn6)
Notice of Registration
The trustee's duty to give notice that a trust has been registered is narrower than the general duty to inform.(fn7) It would be impossible to notify all of the beneficiaries, including remote contingent beneficiaries (at least some of whom typically are not in existence when a trust is registered). Consequently, this duty runs to the narrower class of "current beneficiaries"(fn8) and one or more persons "who, under section 15-10-403, represent beneficiaries with future interests."(fn9) The CPC does not define current beneficiary, nor does the Uniform Probate Code (UPC), on which the Colorado provision is based. Presumably, these are the beneficiaries who are currently entitled or eligible to receive distributions from the trust.
The purpose of requiring notice to one or more persons who represent future beneficiaries is to alert someone who can protect the interests of future beneficiaries to the existence of the trust.(fn10) The Colorado version of this provision differs in a curious way from the uniform law. The UPC requires notice to one or more persons who, under the UPC provision on representation, may represent beneficiaries with future interests.(fn11) The Colorado version omits the word "may." The omission of "may" is problematic because representation under the CPC is available only in formal proceedings(fn12) and, in most cases, there are no formal proceedings in connection with registering a trust. Accordingly, this requirement is best interpreted to refer to one or more persons who could represent beneficiaries with future interests if there were formal proceedings.
Copy of All or Part of the Trust Instrument
The CPC requires that, "[u]pon reasonable request, the trustee shall provide the beneficiary with a copy of the terms of the trust which describe or affect his interest. . . ."(fn13) Note that this duty runs to all beneficiaries, which includes remote contingent beneficiaries, but that the duty is constrained by the requirements that the beneficiary must make a request and that the request must be reasonable. This duty also is limited to providing a copy of the portions of the trust document that "describe or affect" the requesting beneficiary's interest. It may be difficult to determine exactly which parts of the trust instrument describe or affect the beneficiary's interest and, at least in a litigation context, it seems likely that the beneficiary will be able to obtain a copy of the entire document.(fn14)
For example, a Virginia case rejected a trustee's argument that producing the entire trust instrument would violate the trustee's duty of confidentiality to the other trust beneficiaries and affirmed the trial court's order that the trustee had to provide the entire document.(fn15) Similarly, a North Carolina case required the trustee to provide full copies of an amended and restated trust agreement, as well as a subsequent amendment, but not prior versions of the trust that had been revoked.(fn16) In neither of these cases, however, was there a statute limiting the beneficiary's right to only those portions of the trust instrument that affected that beneficiary's interest. Michigan does have such a statute, and the Michigan Court of Appeals recently held that a beneficiary nonetheless was entitled to "a complete and unredacted copy of the trust instrument."(fn17)
Financial Information and Accountings
The trustee's duty to provide financial information is, generally, to "provide the beneficiary . . . with relevant information about the assets of the trust and the particulars relating to the administration,"(fn18) and, specifically, to provide "a statement of the accounts of the trust annually and on termination of the trust or change of the trustee."(fn19) This duty again runs to all of the beneficiaries, but is constrained by the requirement that the beneficiary must make a reasonable request for the information.(fn20) That even a future contingent beneficiary is entitled to an accounting is supported by case law in other jurisdictions.(fn21)
The specifics of what must be included in an accounting are fleshed out in the Colorado Rules of Probate Procedure (C.R.P.P.). In general, "[a] fiduciary accounting shall contain sufficient information to put the interested persons on notice as to all significant transactions affecting administration during the accounting period."(fn22) A "required" accounting must include in reasonable detail the receipts and disbursements during the accounting period and the assets remaining at the end of the period, and must describe significant transactions during the accounting period.(fn23) If the accounting will not be submitted to the court for approval, it need not be particularly formal, as long as it clearly communicates the required information.(fn24)
The CPC does not require that accountings be submitted to or approved by the court, but a beneficiary may require an accounting to the court, or the trustee may request approval of its accounting for the trustee's protection.(fn25) Accountings that are submitted to the court must comply with C.R.P.P. 31 and are acceptable if they conform to the 1984 version of the Uniform Fiduciary Accounting Standards as recommended by the Committee on National Fiduciary Accounting standards.(fn26)
Colorado case law emphatically endorses the importance of accountings.(fn27) The trustee's duties to keep the beneficiary informed and to account to the beneficiary do not extend to creditors of the beneficiary, however, unless the creditor has acquired an interest in the trust(fn28) (which usually will be prevented by a spendthrift provision).
Special Situations
Additional considerations apply in two situations. The first is where someone holds a presently exercisable general power of appointment over the trust, and the second is where the trust has a charitable beneficiary.
Holder of a Presently Exercisable
General Power of Appointment
The CPC, like the UPC, treats the holder of a presently exercisable general power of appointment as if the holder were the sole trust beneficiary for purposes of "granting consent or approval with regard to the acts or accounts of a . . . trustee. . . ."(fn29) A power of revocation is specifically treated as a presently exercisable general power of appointment for this purpose.(fn30) The holder of the power is "deemed to act for beneficiaries to the extent that their interests . . . are subject to the power."(fn31) Consequently, during the lifetime of the settlor of a revocable living trust, the trustee's duty to inform effectively runs only to the settlor, at least as long as the settlor is capable.
It is not clear how the trustee's duty to inform is affected when the settlor of a revocable trust becomes incapacitated. Because the settlor can no longer effectively revoke the trust or take action to enforce the trust, it may be that the trustee's duty to inform should extend to the other beneficiaries when the settlor becomes incapacitated. On the other hand, a revocable living trust is viewed as a will substitute, and information about a person's will and estate do not become automatically available to the...
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