Trust Records and Communication To Beneficiaries and Others

Records and Communications. The fiduciary is responsible for maintaining trust records regarding any actions the fiduciary may take. For a trustee, this may include any data collected from expenses paid, distributions made, income earned, and any other action taken in administering the trust.

As a trustee, that is a key responsibility. Keeping clear records of all that was done and communicating those details in an understandable manner to everyone involved (e.g., current beneficiaries, future beneficiaries, co-trustees, and perhaps other individuals like a trust protector) may also be key to avoiding conflict among the beneficiaries and others involved and reducing the risks of facing a lawsuit or claim. 

The trustee should get detailed records of trust assets when the trust was created (if serving as the initial trustee) or when the trustee takes over from a prior trustee. This should include a detailed inventory of all assets, a description of the assets, the income tax cost basis of the assets, and so forth. It is often advisable to have a CPA specialized in trust accounting and trust income taxes advise the trustee even on what might seem like a relatively simple trust. 

Communication with Beneficiaries. Without clear and periodic communications between the fiduciary and beneficiaries, beneficiaries may conclude that the fiduciary is misappropriating assets, failing to invest appropriately, etc. See the discussion above on “Quiet Trusts.” Assuaging these concerns is beneficial to both the fiduciary and beneficiaries. It may reduce the likelihood of litigation or strife between the fiduciary and beneficiaries and ease any concerns the beneficiaries may have.

As a suggestion, the trustee may consider:

• Send periodic letters to all involved. List each person who receives the letter and what each person receives (e.g., list every enclosure sent). Number the letters sequentially and date each letter. Consider sending each communication via a method that confirms tracking and receipt. Save proof of delivery for each recipient. This can be done via email with read receipts if you are confident that the beneficiaries and anyone else involved are comfortable with that.
• Send copies of key legal documents. The primary document may be a power of attorney if the fiduciary is acting as an agent, a will if acting as executor or as a trustee under a testamentary trust formed under the will, or a trust if they are serving as a trustee (or in another capacity). Other relevant documents might include the deed to a house owned by the trust or a life insurance policy, application, and eventual payment documents.
• Enclose financial data so that everyone understands what is involved. What the fiduciary discloses and to whom may depend on the circumstances. Rather than exercising independent judgment, it may be prudent for the fiduciary to seek legal advice (at the expense of the trust) to avoid the time and cost of litigation.
• Listing all expenses paid and distributions made.

Accounting. An accounting is a formal recording of all receipts and disbursements of a fiduciary arrangement. By way of example, the trustee of a trust might provide an accounting listing all assets given or distributed to the trust, any income and other receipts, all expenses and other disbursements. An accounting may be a formal accounting done in accordance with the laws of a particular jurisdiction or court. Formal accounting is costly and must be done by a professional experienced in the requirements of court accounting in a particular state and perhaps even a specific county. Often, informal accountings give substantial information to beneficiaries and others without the cost and formalities of the formal accounting. 

Should a fiduciary choose to resign, an accounting may serve to release a fiduciary from liability and enable a successor fiduciary to resume the former fiduciary’s duties. Typically, when someone ceases to serve as a fiduciary, they have the beneficiaries sign a legal document releasing them from further liability. For that document to be effective, the beneficiaries may need to reasonably understand what they release. That requires that the beneficiaries receive informative financial information necessitating the provision of formal documentation. That will typically require the provision of some type of financial information. The information should be presented so beneficiaries without financial acumen can understand the implications. The financial information should be presented in a clear and understandable way. While this might include bank and brokerage statements, clearly summarized information may make it more understandable. The objective is to inform beneficiaries and demonstrate that nothing wrong was done. That might avoid any future claims based on their not understanding the finances involved.

The fiduciary should endeavor to keep detailed records on a regular basis (at least annually). Creating a formal accounting will be easier if the fiduciary has kept impeccable accounting records from the beginning of serving in their position. Records may also be helpful, if not essential, in providing the information necessary to complete annual income tax returns and to communicate with beneficiaries and others, such as co-fiduciaries periodically. 

Special circumstances may require the preparation of a formal accounting. For example, if the fiduciary is sued, a formal accounting may be necessary. If there are charitable beneficiaries, the Attorney General of the state where the trust has situs may require reporting that requires a formal accounting. 

When the fiduciary begins to serve, they should discuss with a CPA specializing in fiduciary accounting and an attorney to make deliberate decisions about what level of accounting will be done, who will perform each task, and what is involved. It is important to outline specific steps the fiduciary should take.

Receipt and Release.   If a fiduciary wishes to cease serving or close the estate or trust, the customary approach is to have all beneficiaries sign a legal document that generally acknowledges any disbursements made in their favor and that they are releasing the fiduciary from any claims. However, this is merely the beginning of a well-crafted receipt and release. In some cases, a broader document, called a “receipt, release, and refunding bond,” may be used. That document has the beneficiaries agree to refund to the estate or trust what they have received if necessary to meet a newfound expense or a liability of the trust or estate.

A receipt and release might include:

• The purpose of the receipt and release. For example, if the fiduciary served as an agent under your durable power of attorney for 12 years, from the date you suffered a traumatic brain injury until the date of the appointment of a court-appointed guardian, the fiduciary may be seeking to be released for all that they did during that time period. The release sought may be signed by the guardian once appointed and perhaps by family members involved. Whatever the facts and objectives, they should be stated.
• Details of the legal arrangement that created the fiduciary position (e.g., the name of the person creating a trust, the date the trust was created, the name of the trust, the tax identification number for the trust, and, of course, a copy of the trust document).
• Listing of all documents, reports, and statements provided. If the fiduciary adhered to the recommended suggestion of periodic informational letters, providing copies of the letters as an exhibit and referring to the attachments listed in each may suffice. If there are any important documents or statements that were not already provided, they should be listed, explained, and attached to the receipt and release.
• Copies of all income tax returns. For example, if the fiduciary acted as a trustee for a trust, the trust income tax returns for the period served should be provided.
• The beneficiaries signing the release should agree not to request any further disclosures and that the disclosures made in the receipt and release, the attachments, and the documents previously provided that are references in the receipt and release sufficed for them to release the fiduciary from any liability or claims.
• The beneficiaries should acknowledge any distributions or payments made to them. 
• They should waive any further rights to seek judicial intervention or other actions.
• Consider having the beneficiaries agree to cover any future identified expenses or liability of the estate or trust.
• Any fees paid for serving as a fiduciary should be indicated along with how they were calculated, the provisions in the legal document and state law that support the fees paid, etc. For example, if the fiduciary was entitled to a fiduciary commission under state law based on the value of assets, they should disclose the values of assets and the calculation. Explain how values were calculated and, if they were based on appraisals or estimates, have those attached. The beneficiaries should acknowledge what the fiduciary was paid, agree to those payments, and waive any rights to contest those payments. 
• If any beneficiaries are minors or under a disability, fiduciaries should determine with the guidance of an attorney how they can be bound to the agreement. It may be possible that a parent or other person may be able to sign on behalf of minors who would claim under them through virtual representation. In some other cases, a minor or incapacitated beneficiary may have to have a court appoint a guardian to sign on his behalf. This will be dependent on the state law of where the trust or estate is governed.

The attachments to the receipt and release may be essential to securing and limiting the fiduciary’s liability. As noted above, these may include all historical brokerage or other statements and a summary or report that makes clear the totality of what occurred. Other disclosures may also be helpful or critical.

If the fiduciary seeks to be released from liability as a personal representative of an estate, attaching a copy of the estate tax return and all its exhibits may be important or essential. If the return was previously provided, e.g., as part of the periodic reports suggested above, the fiduciary might include a reference to the number and date of the letter where it may be found. If the decedent owned real estate, e.g., a vacation home, a copy of the deed, sales contract, and other relevant information may be included. If there was a closely held business held in your assets that was sold, the sales contract should be included.  If the fiduciary was involved in any transactions, detailed and careful disclosure of any involvement might be essential. However, before the fiduciary has any involvement, even tangentially and insignificantly, in any transaction or financial arrangement, they should discuss it with an attorney. The rules are incredibly strict on the care that a fiduciary must exercise to avoid self-dealing.