Information to which a trust protector or trust director is entitled.

Charles E. Rounds, Jr.
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A prospective trustee of a trust under which a non-beneficiary is to be granted a power to control certain actions of the trustee, think trust protector or trust director, should insist that the governing instrument clearly spell out what the trustee's duties shall be when it comes to furnishing the powerholder with accountings and other critical information about the trust’s administration; so also should the prospective powerholder, for that matter. To complicate matters further, under default law the trustee has a countervailing duty to the beneficiaries of confidentiality. The failure to sort all this out at the drafting stage is just asking for trouble, whether exercise of the power is to be permissive or mandatory.134 When a protector’s/director’s power to control the trustee is mandatory and extensive, the powerholder's right to critical information about the trust, as well as the trustee’s duty proactively to supply it, would seem self-evident.135 Forcing protectors/directors to fly blind would hardly seem in the best interests of trust beneficiaries. Courts don’t seem to be getting the message.

Take In re the Macy Lynne Quintanilla Trust, 2018 WL 4903068 (Tex. App. 2018). Though the trustee’s mergers of substantially identical trusts had had the effect of removing the incumbent trust protector from the picture, who, ironically, had been vested with an express power to remove the trustee, the court found that the trustee had had no duty to furnish the protector with information pertaining to the mergers, or to otherwise account to the protector, the governing trust instrument being silent on the subject.

In one California case, a trust protector who had been expressly designated a fiduciary in the governing trust instrument was nonetheless denied the requisite standing to compel an accounting. See Carberry v. Kaltschmid, 2018 WL 2731898 (Cal. 2018). A fiduciary who is intentionally kept in the dark by the court is a fiduciary in name only.

The Uniform Directed Trust Act, discussed generally in §3.2.6 of Loring and Rounds: A Trustee’s Handbook, would impose on a directed trustee a duty to keep the trust director or trust protector informed as to matters that are reasonably related to the “powers or duties of the trustee” and the “powers or duties of the director.” The trust director or trust protector would have a reciprocal duty to keep the directed trustee appropriately informed.

The trustee’s countervailing duty of confidentiality is taken up generally in §6.2.3 of Loring and Rounds: A Trustee’s Handbook [pages 626-628] of the 2019 Edition, which section is reproduced in its entirety in the Appendix below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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