Using Information Surrogates in Trust Administration

Lauren Z. Curry (J.D. Candidate May 2011, Vanderbilt University Law School) recently published her note entitled Agents in Secrecy: The Use of Information Surrogates in Trust Administration, 64 Vand. L. Rev. 925 (2011). An excerpt from the introduction is below:

Just how a trustee should administer a trust in which a settlor has prohibited disclosure to beneficiaries is an issue under debate, particularly after the creation of the Uniform Trust Code (―UTC‖ or the ―Code‖). Since 2000, when the National Conference of Commissioners on Uniform State Laws (―NCCUSL‖) promulgated the UTC, twenty-three jurisdictions have adopted portions of the UTC. Interestingly, no state has adopted the Code‘s provisions on the duty to inform verbatim. Rather, the enacting states have modified those provisions in various ways, with the result that no two states‘ provisions on the duty to inform are precisely the same. These deviations, which typically decrease the amount of mandatory information disclosure, indicate reluctance by state legislatures to completely accept the UTC‘s guidance regarding mandatory trust information disclosure.

This Note focuses on the duty to disclose as it applies to irrevocable trusts. An irrevocable trust is a trust in which the settlor has relinquished the right to terminate the trust and, therefore, has completely passed legal title on to the trustee. The UTC sections that have incited so much debate over nondisclosure only apply to irrevocable trusts. This Note does not address revocable trusts because of the nearly uncontested principle—also present in the UTC—that a trustee of a revocable trust is answerable only to the settlor and complete nondisclosure to beneficiaries is therefore permissible. Part II of this Note reviews the development of the duty to disclose, beginning with the traditional common law requirement that settlors provide at least some information to beneficiaries, then examines the approach of the UTC, and finally looks to how states have reacted to the UTC in their own enactment of a duty to inform. Part III analyzes the policy concerns behind mandating disclosure, on the one hand, and permitting nondisclosure, on the other. States have addressed these policy concerns in different ways, and the result is that there is not a uniform body of trust law on this important issue.

Finally, Part IV concludes that a surrogate should be appointed to receive trust information on behalf of the beneficiaries. While the majority of relevant scholarship concludes that beneficiaries are put at too great a risk when settlors prohibit disclosure to beneficiaries, the current scholarship does not account for the trend in UTC states of allowing settlors to override mandatory disclosure. Given the great number of states that have reduced or eliminated mandatory trust information disclosure, this Note observes that advocacy of information disclosure alone has not sufficed to persuade states to adopt the UTC‘s position. Therefore, this Note explores and advocates for a solution that would require disclosure in all irrevocable trusts, but would allow a settlor to avoid that disclosure to the beneficiaries themselves. The appointment of a surrogate to receive the information instead of the beneficiaries allows the surrogate to ensure that the interests of the beneficiaries are protected, but gives a settlor the right to prohibit the trustee from disclosing information directly to the beneficiaries, thus maintaining the settlor‘s personal privacy as well as the confidentiality of the trust assets. By addressing the policy concerns on both sides of the debate, this solution provides the most direct path toward promoting information disclosure and encouraging trust law uniformity, as advocated by the drafters of the UTC.