2011 Washington Trust Act

From the Trust and Estates Department of Karr Tuttle Campbell

The 2011 Washington Trust Act (the “Act”), passed under Substitute House Bill 1051, creates significant changes in the law regarding the creation and administration of trusts.  These changes, which become effective January 1, 2012, include mandatory notice and reporting requirements as well as safe harbor accounting and reporting provisions.

How Does this Impact Me?

The new laws have broad-reaching implications for the creation and administration of almost all trusts.   Persons whose estate plans currently include an irrevocable trust or a trust that becomes irrevocable in the future (such as testamentary trusts for minor children, marital trusts for a surviving spouse, or trusts created for tax planning purposes) may be affected by these changes in the law.

Persons who are currently serving as a trustee of an irrevocable trust will be affected by these changes and should be aware that a trustee’s failure to comply with the Act could lead to a claim against the trustee for breach of fiduciary duties.

The new laws also clarify the rights of beneficiaries to receive notice and information about irrevocable trusts.  In addition, where a minor child or grandchild is a current or future beneficiary of a trust, the trustee may be required in certain circumstances to petition the court for the appointment of a special representative to represent the minor.

What Should I Do?

We strongly recommend that if you are a currently-serving trustee of an irrevocable trust (such as a qualified personal residence trust, an irrevocable life insurance trust, a marital trust, or a family trust) you contact the trust’s attorney to discuss the changes in the law.  In addition, we recommend that if your current estate plan includes a will or revocable trust providing for the formation of a trust upon your death, that you contact your estate planning attorney to discuss the possible impact the new law may have on your estate plan.  Finally, if you are a beneficiary of an irrevocable trust, you may be entitled to certain notices and may request certain information from the trustee.  If you have any questions as to your rights, we recommend you contact the trustee or an attorney about your rights in that regard.

The new laws have broad-reaching implications for the creation and administration of almost all trusts.   Persons whose estate plans currently include an irrevocable trust or a trust that becomes irrevocable in the future (such as testamentary trusts for minor children, marital trusts for a surviving spouse, or trusts created for tax planning purposes) may be affected by these changes in the law. Persons who are currently serving as a trustee of an irrevocable trust will be affected by these changes and should be aware that a trustee’s failure to comply with the Act could lead to a claim against the trustee for breach of fiduciary duties.The new laws also clarify the rights of beneficiaries to receive notice and information about irrevocable trusts.  In addition, where a minor child or grandchild is a current or future beneficiary of a trust, the trustee may be required in certain circumstances to petition the court for the appointment of a special representative to represent the minor.We strongly recommend that if you are a currently-serving trustee of an irrevocable trust (such as a qualified personal residence trust, an irrevocable life insurance trust, a marital trust, or a family trust) you contact the trust’s attorney to discuss the changes in the law.  In addition, we recommend that if your current estate plan includes a will or revocable trust providing for the formation of a trust upon your death, that you contact your estate planning attorney to discuss the possible impact the new law may have on your estate plan.  Finally, if you are a beneficiary of an irrevocable trust, you may be entitled to certain notices and may request certain information from the trustee.  If you have any questions as to your rights, we recommend you contact the trustee or an attorney about your rights in that regard.

What are the New Requirements for Trustees?

(1) Notification of the Creation and Existence of a Trust

The Act contains mandatory notice provisions regarding the creation and existence of irrevocable trusts.  Within sixty days after the date of acceptance of the position of trustee of an irrevocable trust, or the date the trustee of a formerly revocable trust acquires knowledge that the trust has become irrevocable, the trustee must give notice to all trust beneficiaries of (a) the existence of the trust, (b) the identity of the grantor, (c) the trustee’s name, address, and telephone number, and (d) that the beneficiary has the right to request information that is reasonably necessary to enable the beneficiary to enforce the beneficiary’s rights under the trust.  These notice requirements cannot be waived in the trust agreement and apply to all irrevocable trusts that are created or that come into effect on or after January 1, 2012, and to changes in trustees of all irrevocable trusts on or after January 1, 2012.

(2)  Reporting of Information Reasonably Necessary to Keep Beneficiaries Informed

Under the Act, a trustee must keep trust beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for beneficiaries to protect their interests in the trust.  This requirement to provide information cannot be waived in the trust agreement and applies to all irrevocable trusts, not just those created on or after January 1, 2012.

The Act gives very specific guidelines for the preparation and distribution of a safe harbor report to satisfy this requirement.  The Act sets forth eight categories of information that should be disclosed in this safe harbor report, including a statement of receipts and disbursements, the trustee’s compensation, compensation paid to agents such as attorneys and accountants, and a statement that claims made against a trustee for breach of trust must be brought within three years from the date the beneficiary receives the report.

The Act also provides that a beneficiary may request information “reasonably necessary” to enable the beneficiary to enforce his or her rights under the trust.  The trustee must provide this information within sixty days of receiving the request.

What Other Changes Should I Know About?

(1) Time for Bringing Claims Against Trustee for Breach of Trust

The Act provides new rules that limit the time in which a beneficiary may bring a claim against the trustee for breach of trust.  Under the Act, a beneficiary may not bring a proceeding against a trustee more than three years after the date that the beneficiary receives the safe harbor report described above.  If no safe harbor report is sent, then the beneficiary must bring an action against the trustee within three years from the date of resignation of the trustee, termination of the beneficiary’s interest, or termination of the trust, whichever occurs first, and regardless of when the beneficiary discovered the breach.  A trustee who commits a breach of trust is liable for the greater of the amount required to restore the value of the property or the profit the trustee made from the breach.

(2) Termination of a Trust and Final Distributions

The Act allows a process for the proper termination of a trust that provides some protection to the trustee.  Under this termination procedure, the beneficiaries are prevented from contesting the distributions if they fail to object within thirty days after notice is provided of the trustee’s plan for final distributions and termination of the trust.  This notice and termination procedure, however, does not release a trustee from other claims of breach of trust.

Plan Review

We always recommend that clients review their estate plans with counsel every three to five years or whenever any significant event occurs in order to ensure that documents adequately reflect current law and testamentary intentions.

For more information about the 2011 Washington Trust Act and what effect the current law might have on your personal estate plan, please contact any of the Karr Tuttle Campbell Tax, Trusts, and Estates attorneys or your personal Karr Tuttle Campbell attorney, all of whom can be reached at (206) 223-1313 or by visiting the firm’s Web site at www.karrtuttle.com.

Copyright © 2011

KARR  TUTTLE  CAMPBELL

Estate Planning  updates are published by Karr Tuttle Campbell to present information on legal matters that may be deserving of clients’ immediate attention. The information contained in this Alert should not be regarded as legal advice or opinion.