Article on Mandatory Disclosure Provisions of the Uniform Trust Code
The mandatory disclosure provisions of the Uniform Trust Code(UTC) have failed to gain acceptance among adopting jurisdictions because thedrafting committee took a reform-based approach that is extreme in terms ofattempting to protect beneficiaries’ interests over the intent of settlors. Asa mandatory provision, the disclosure provisions in the UTC control in all situationseven if directly contrary to the plain language of the trust. This isdistinguished from the default provisions, which apply wherever the trustinstrument is silent as to a particular issue. The UTC, as initially draftedand subsequently amended, proposes substantial mandatory-reporting requirementsfor trustees of all irrevocable trusts regardless of the settlor’s explicitlystated intent to the contrary.
The mandatory-disclosure provisions have been universally rejectedby adopting jurisdictions. These jurisdictions have elected to either deletethe provisions altogether or modify the provisions to limit their scope. Theoverriding purpose of any uniform law is to achieve uniformity among theseveral adopting jurisdictions. This would be particularly helpful in trust lawwhere the common law is sparse in many jurisdictions. The mandatory disclosure provisionsof the uniform trust code have failed to achieve uniformity and, as such, havefailed to achieve their primary purpose and the most recent version of themandatory-disclosure provisions of the UTC acknowledges that uniformity isunlikely to be achieved as to these provisions. However, with a majority of jurisdictionselecting to eliminate the mandatory nature of the disclosure provisions and aminority of adopting jurisdictions following a different model, a reasonableamount of uniformity may still be achieved by simply revising the UTC to followone of these two groups of adopting jurisdictions.
While uniformity is the overriding goal of any uniform law, themerits of the law apart from its propensity for adoption warrant carefulconsideration and may inform the dialogue as to why the various jurisdictionshave deemed the UTC mandatory disclosure provisions unworthy of adoption. Themandatory provisions have been supported by academics and the UTC draftingcommittee as a necessary encroachment on the rights of the settlor in order toprotect the beneficiaries’ rights and, in so doing, protect the intent of thesettlor. The argument seems to be that the UTC gives the settlors what theywould really want if fully informed rather than what they think they want. A significantweakness in this logic is that the mandatory-disclosure provisions relyexclusively on the trustee to make the disclosures that will allow thebeneficiaries to protect themselves against the malfeasance of that sametrustee. A self-reporting regime provides a weak internal-control environmentand certainly does not provide the type of protection that should meritoverriding the intent of the settlor in all circumstances.
The largest group of UTC adopting jurisdictions simply deletedthe mandatory-disclosure provisions altogether, and so the maximum level ofuniformity would be achieved if the UTC drafting committee also deleted themandatory-disclosure provisions in UTC section 105. Although, the draftingcommittee could achieve a similar result by introducing a simple tax-based disclosureprovision stating that the trust instrument cannot override the reportingrequirements under the internal revenue code. Such a provision would beappropriate if the drafting committee elects to abandon the current UTCmandatory disclosure provisions.
Alternatively, if the drafting committee cannot reconcileits desire to promote beneficiaries’ rights with a complete deletion of themandatory disclosure provisions, then the committee could revise the UTCmandatory disclosure provisions by following the Washington D.C. Model (D.C.Model). The D.C. Model provides for a more robust internal control environmentby introducing a disinterested third party as a watchdog to receive disclosuresand thereby protect the beneficiaries against trustee malfeasance. Because thismodel has been followed by other jurisdictions and provides a more robustcontrol environment, adopting the D.C. Model would represent a true compromisebetween the competing policy concerns. While still favoring reform overuniformity, if the UTC adopted the D.C. Model, it would at least represent asmall minority of jurisdictions, as opposed to no jurisdiction at all. Inasmuchas the primary purpose of the UTC is to achieve uniformity among the severalstates, the UTC drafting committee would be remiss if it failed to adopt eitheroption and left the mandatory-disclosure provisions contained in the currentversion of the UTC in place.