Shedding light on keeping beneficiaries in the dark.

• Author: Basham, Cindy
• Position: Florida

A trustee has a fundamental duty to keep beneficiaries informed of the administration of a trust. (1) However, many estate planning clients are surprised to learn of the disclosure requirements imposed on a trustee by the Florida Trust Code. F.S. [section]736.0813 provides that a trustee must keep the qualified beneficiaries of a trust "reasonably informed of the trust and its administration." For example, the trustee must provide the qualified beneficiaries with his or her contact information, notice of the establishment of an irrevocable trust, notice of the right to receive a copy of the trust instrument, and notice of the right to receive accountings. Specifically as to accountings, typically the most problematic disclosure for settlors seeking privacy, the trustee of an irrevocable trust must provide an accounting to each qualified beneficiary at least annually, on termination of the trust, and on change of the trustee. (2)

Surprisingly, for many clients who are not familiar with trust law, the definition of the term "qualified beneficiary" and, thus, the group of persons to whom disclosure must be made, includes not only those beneficiaries who are eligible to receive a distribution from an irrevocable trust when it is first established, but also the first-line remainder beneficiaries. (3)

For one reason or another, the settlor may desire to withhold information from one or more qualified beneficiaries. In many states, the settlor may do so for a certain period of time without providing for an alternate recipient if the settlor includes such a provision in the trust instrument. (4) Florida is not one of those states. Rather, the representation statutes of the Florida Trust Code resolve the dichotomy between the settlor's desire for privacy and the beneficiary's right to information by shifting the identity of the person to whom the trustee is required to provide disclosure.

The representation statutes, located in Part III of the Florida Trust Code, allow a person to represent and bind a beneficiary and to receive notices, information, accountings, or reports on behalf of a beneficiary. The persons who can bind others under the representation statutes fall within five categories, as follows: The holder of a power of appointment; fiduciaries and parents; a person having a substantially identical interest as a minor, incapacitated, or unborn individual or a person whose location or identity is unknown and not reasonably ascertainable; a court-appointed representative; and a designated representative. (5) For purposes of preparing a trust instrument when a settlor desires to keep information from a beneficiary, this article focuses on representation by a designated representative and representation by the holder of a power of appointment.

Representation by a Designated Representative

The designated representative concept is not found in the Uniform Trust Code (UTC). A designated representative is a person nominated in the trust instrument who can represent and bind a beneficiary and receive any notice, information, accounting, or report on behalf of the beneficiary. The trust instrument may also designate one or more persons, other than a trustee, to nominate a designated representative. (6)

As such, the trust instrument could give a person or committee the power to appoint a designated representative for one or more beneficiaries. The trust instrument could provide a set period of time during which a designated representative would serve for a beneficiary; for example, until the beneficiary reaches a certain age or until the beneficiary graduates with a bachelor's degree. Alternatively, the trust instrument could set forth a discretionary approach for appointing a designated representative; for example, by providing that the person or committee nominated must appoint a designated representative when they determine that disclosing trust information to the beneficiary would not be in a beneficiary's best interests. Such a provision would essentially allow the person or committee nominated to turn on and off the flow of information to one or more beneficiaries of the trust depending on the circumstances at the time.

The designated representative statute has several limitations, which the trust instrument cannot alter. (7) The trustee and the designated representative cannot be the same person. Also, a designated representative cannot be a beneficiary unless the designated representative was named by the settlor or the designated representative is the beneficiary's spouse or a grandparent or descendant of a grandparent of the beneficiary or the beneficiary's spouse. Lastly, the trust instrument must specifically provide for a designated representative in order for a designated representative to serve. (8)

A designated representative is not a fiduciary and is not liable to the beneficiary whose interests are represented or to anyone claiming through that beneficiary for actions taken or omissions to act made in good faith. (9) The trust instrument could provide for a higher standard of care, but doing so may discourage someone from serving as...