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Katya Sverdlov Blog

Tuesday, September 26, 2017

You have a Trust? When DO beneficiaries find out about money left to them ?

Clients often establish Trusts for the purpose of deferring distributions to beneficiaries. These Trusts are usually established to protect assets from risks such as mismanagement, imprudent spending, creditors and divorce.

But when do Trust beneficiaries have to receive information about the Trust and the assets? This question is different from the one about when the beneficiaries should start receiving trust distributions. A grandfather may establish a Trust with $1 million for the benefit of his two young grandchildren, name his accountant as the Trustee, and provide that grandchildren will receive the money outright once they turn 30. Do the grandchildren have a right to know about this money before they turn 30? 

A parent may not want the child to find out about the money for many different reasons. These include: encouraging career drive and self-motivation, immaturity about finances, developmental problems or substance abuse. However, there are drawbacks to this lack of information: a beneficiary unaware of a trust’s existence would be unable to monitor the trustee’s activities and to protect their interests. Furthermore, without communication, the Trustee may not be aware of the beneficiary’s financial needs, risk tolerance and changes in circumstances.

Typically, it is both the state law and the Trust document itself which provides for when the information needs to be disclosed. In the majority of states, the Trustees often have to keep the beneficiaries reasonably informed, by providing beneficiaries with annual trust accounting statements, and, if requested, a copy of the Trust. The Trustees often, however, do not disclose information to beneficiaries, with the result that the revelation of the assets comes as a complete shock.

Sharing information is an important part of the planning process. You should discuss this with your advisor at the same time as the Trust as being set up.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


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