A trustee is responsible for administering a trust for the benefit of the beneficiary or beneficiaries. Unless the beneficiary is also a trustee, he or she will not have direct access to information regarding the investments, debts, liabilities, expenses, receipts and other financial arrangements of the trust. Without a mechanism for learning this information, the beneficiary might worry that assets will run out, the trustee might misuse funds, or another problem will occur. Therefore, Missouri law, and the law of those states that have adopted similar provisions from the Uniform Trust Code (UTC), provides that a trustee must provide specific information and an annual report to certain beneficiaries so their interests may be protected.
The Missouri Uniform Trust Code imposes upon a trustee a duty to inform and report. A trustee must keep the qualified beneficiaries of a trust “reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” RSMo §456.8-813.1. Under this statute, the trustee must send to the permissible distributees of trust income and/or principal, and to other beneficiaries who request it, an annual report “of the trust property, liabilities, receipts, and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and, if feasible, their respective market values.” RSMo §456.8-813.3. Such a report does not need to be prepared in any particular format or with a high degree of formality – in fact, according to the UTC commentary, the “requirement might even be satisfied by providing the beneficiaries with copies of the trust’s income tax returns and monthly brokerage account statements if the information on those returns and statements is complete and sufficiently clear. The key factor is not the format chosen but whether the report provides the beneficiaries with the information necessary to protect their interests.”
The Missouri statute does allow a beneficiary to waive the annual report requirement. It is typically waived in revocable trusts where the beneficiary is also the trustee and thus has direct access to the information.
Therefore, a trustee is statutorily required to provide an annual report in many circumstances. Even when this requirement is waived, a trustee should still consider preparing an annual report. In addition to the duty to inform and report, Missouri law also imposes upon a trustee a duty to administer the trust in good faith, a duty of loyalty, a duty of impartiality, a duty of prudent administration, a duty to incur only reasonable costs, and a duty to maintain adequate trust records. While there is no particular format or high level of formality required, an accurate, detailed and complete annual report not only demonstrates that the trustee has met its duty to inform and report, but also provides evidence that the trustee has fulfilled its other duties.
Further, such an annual report can be of great help to someone reviewing his or her estate planning. An up-to-date report provides the individual and his or her attorney, financial advisor and/or accountant with current financial information, consolidated in one document that can be used when considering new tax or estate planning strategies. Annual reports are particularly useful when there are estate/gift tax and GST exemption issues to consider in the individual’s estate plan.
If you are a trustee who needs assistance in preparing annual reports for trusts for which you are responsible, or you are a beneficiary questioning what information you are eligible to receive, or you have any other questions concerning annual trust reports, please contact a member of our Trusts & Estates Group.
This is part of a series of posts that will focus on the benefits and uses of corporate trustees. Please stay tuned for future Preservation posts on this topic. A roundup of posts in the series can be found here.