Agents in Secrecy: The Use of Information Surrogates in Trust Administration
April 2011 I 64 Vand. L. Rev. 925 I Lauren Z. Curry
For full article with citations, please visit: https://scholarship.law.vanderbilt.edu/vlr/vol64/iss3/5/
I. Introduction
Trusting another to look after one's best interest when money is at stake is difficult in many different situations. This is true in the area of trust administration as well. As with most areas of law and regulation, trust law addresses this concern primarily through the requirement of information disclosure. Information disclosure to trust beneficiaries has become a heated issue among trust scholars and practitioners. Interestingly, as fundamental as disclosure may be in trust administration, the duty to disclose is not precisely defined at common law and is far from uniform. This creates a profusion of problems for trustees who operate in multiple jurisdictions, or who are attempting to fulfill fiduciary or administrative duties that are not clearly defined. States recently have mentioned this desirability for clarity and uniformity when modifying their own trust laws. Additionally, litigation against trustees is on the rise. While there are many reasons for this recent uptick in litigation, the chance that a trustee will violate her obligations as a fiduciary, and therefore be subject to litigation, increases when the trustee fails to fully understand her duties. This is especially true in an area of law as complex and varied as a trustee's duty to disclose trust information to its beneficiaries.
Underlying the difficulties in a trustee's attempt to fulfill this duty are two fundamental and seemingly opposing principles of trust law. On the one hand, "trust law typically accord[s] a trust settlor nearly unfettered latitude to determine which trust terms and restrictions would benefit her chosen beneficiaries. . . ." This principle advocates for a system of default rules that would allow a settlor to prohibit information disclosure and protect the trust funds against attack by immature or rival beneficiaries. On the other hand, "[i]t is an accepted principle of trust law that a private trust exists to benefit the beneficiaries thereof." Once a settlor has placed assets into a trust, she has relinquished control over these assets. This principle supports mandating information disclosure to trust beneficiaries, the holders of equitable title in the trust assets. Traditionally, as a result of these two principles, settlors could construct the terms of their trusts with great discretion, but were required under common law to provide at a minimum information reasonably related to the beneficiary's interest in enforcing her rights under the trust.
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.
II. Development of the Present Conflict
Trust law is a creation of English common law and has developed with great diversity among the various states, leading to complications and confusion for parties administering trusts in different states. This Part describes the development of the duty to inform in trust administration. Specifically, Subpart A will first look at the common law requirements, which existed until the development of the UTC in 2000. Subpart B will then present the balance chosen by the drafters of the UTC and describe the Code's relevant provisions. Finally, Subpart C will look to the current state of the duty to inform in those states that have adopted portions of the UTC. Identifying those sections of the UTC that a state has chosen not to adopt is informative when analyzing whether the UTC has found the right balance in the policy debate between trust privacy and protection for the beneficiaries' interests.
A. The Traditional Common Law Principle
From the creation of the trust instrument in the United States, the body of trust law has been governed primarily by common law. Historically, the settlor's intent is "the defining force in trust law."' With a few exceptions, the settlor was at liberty to decide which trust terms and administration methods would best fulfill her intention for her chosen beneficiaries. This key principle would seem to support a settlor's complete right to prohibit a trustee from disclosing any information to beneficiaries. However, judicial decisions over the years established patterns regarding the trustee's duty to provide information to beneficiaries.
Under the most basic principle, a beneficiary of an irrevocable trust is always entitled to information about the trust that is reasonably necessary to allow the beneficiary to enforce the trust, even if the terms of the trust restrict disclosure. This traditional principle requires that the existence of the trust itself must always be disclosed - if a beneficiary does not know that a trust even exists for her benefit, then she will not be able to enforce that trust. The basic fact that a trust exists, however, is not normally sufficient. The trustee must also periodically provide beneficiaries information regarding the administration and condition of the trust. Without this information about the method of administration, the beneficiaries may remain unaware of breaches of fiduciary duty until it is too late to obtain relief.
While the duty to inform is normally triggered when a beneficiary requests information from the trustee, the duty is present even without such a request if deemed to be necessary to protect the beneficiary from a third party. For example, if the beneficiary is about to sell her interest in a trust to a third party, and the trustee is aware that the beneficiary's interest in that trust is more valuable than the beneficiary realizes (and could justify demanding a higher price from the third party), then the trustee is obligated to inform the beneficiary of this information. Additionally, the duty to inform is not limited to current beneficiaries, but also runs "to future beneficiaries regardless of whether [the future beneficiaries'] interests are vested or contingent." In order to fulfill the duty to inform, a trustee is required to provide a full copy of the trust instrument to the beneficiaries, not merely those portions that directly relate to a particular beneficiary.
A quick look at the different manner in which trust law treats revocable, as opposed to irrevocable trusts, explains the concern for beneficiaries' rights. Although this Note focuses on irrevocable trusts, it is worth noting that different rules apply to revocable trusts. As long as a trust remains revocable and the settlor is alive and not incapacitated, "the trustee generally owes a duty only to report to the settlor and should generally not report to any other beneficiaries without the settlor's consent." Therefore, the general disclosure principles listed above did not extend at common law to the administration of a revocable trust. This distinction between the disclosure requirements for irrevocable and revocable trusts clarifies the dispositive issue: trust assets exist entirely for the beneficiaries' benefit. In the case of an irrevocable trust, the settlor no longer has any beneficial interest in the trust assets. Therefore, while the settlor's intent when she created the trust is fundamental to the administration of the trust, her interests are no longer the most important ones once the trust becomes irrevocable. For this reason, an optimal information disclosure rule will be one that protects the beneficiaries' rights.
Common law principles continue to evolve regarding a trustee's duty to provide information. The Restatement (Third) of Trusts revised the trustee's duty to provide information to beneficiaries, making the duty more specific. Case law has also produced a trend that strengthens the duty to inform. In sum, "the history of the duty to inform shows that Anglo-American trust law has regularly recognized a duty in the trustee to provide information to the trust's beneficiaries." This principle was recognized and codified in the UTC in 2000.
B. The Development of the Uniform Trust Code
Greater use of trusts and the related rise in the amount of litigation involving trust administration led NCCUSL to analyze the state of trust law in the early 1990s. NCCUSL found that trust law in most states was thin, with many gaps between the few statutes and reported cases, and that previous attempts at uniform acts relating to trusts, while numerous, were fragmentary. NCCUSL recognized a need for a uniform body of trust law that would "update, fill out, and systemize the American law of trusts."
A uniform body of trust law among the states is beneficial for trustees and the beneficiaries who rely upon them. Although family members are regularly appointed as trustees, an increasing number of settlors have chosen to appoint the more expensive, but often more reliable and professional, institutional trustee. These institutions routinely administer trusts that are governed by the laws of different states. These trustees must constantly keep themselves apprised of the differing trust laws in each state that govern one or more of the trustee's trusts to ensure compliance. Further, beneficiaries of trusts are spread all over the world and are receiving legal advice in those differing jurisdictions on how to best protect their interests. In recognition of this need for uniformity, NCCUSL created what is now known as the Uniform Trust Code.
The UTC codified many of the common law principles regarding the duty to provide information. The UTC was drafted in close coordination with the new revision of the Restatement (Third) of Trusts and parallels that Restatement's strong disclosure duties. Although the UTC follows the common law tradition of generally providing default rules that apply only to the extent the settlor does not provide otherwise in the instrument, section 105 of the UTC specifically prohibits the settlor from waiving certain of the trustee's obligations by listing fourteen unwaivable duties. The unwaivable duties relating to information disclosure are specifically outlined in UTC section 813, which imposes a general obligation to keep the beneficiaries informed as well as several specific notice requirements. For one, the settlor may not override the trustee's duty to notify qualified beneficiaries of an irrevocable trust who have attained twenty-five years of age of the existence of the trust, of the identity of the trustee, and of their right to request trustee's reports. Additionally, a settlor may not eliminate the trustee's duty to respond to the information request of a beneficiary of an irrevocable trust.
The effect of mandating portions of the disclosure duties listed in section 813 is that, with respect to beneficiaries age twenty-five and older, a settlor may dispense with all of the requirements of section 813 except for the duties to inform the beneficiaries of the existence of the trust and of the identity of the trustee, and to provide a beneficiary upon request with such reports as the trustee may have prepared. Among the specific section 813 requirements that a settlor may waive are the duty to provide a beneficiary upon request with a copy of the trust instrument and the requirement that the trustee provide annual reports to the qualified beneficiaries. However, the 2006 comments to section 105, which outlines the default and mandatory rules, note that the trustee may be required to furnish a copy of the entire trust instrument and prepare an annual report in a particular case, if such information is requested by a beneficiary and is reasonably related to the trust's administration. Thus, while section 105 seems to allow a trustee to avoid providing a copy of the trust to a beneficiary, in certain circumstances, if a copy is requested, the trustee would be required to provide it. While these comments under section 105 seem to conflict with the provision of section 813, when in doubt, the UTC favors disclosure to beneficiaries as the better policy.
According to David English, the Reporter for the UTC, the extent to which the settlor may waive the disclosure requirements was the most discussed issue both during the drafting of the UTC and after its adoption by NCCUSL. The UTC seeks to "increase trustee accountability, while at the same time reliev[e] the trustee of the undue burden of having to identify and notify those holding truly remote interests." English acknowledged that the UTC provisions were a compromise with which both sides of the debate would not be satisfied. English also noted that the waiver restrictions in section 105 of the disclosure duties would lead to a direct conflict between the goal of effectuating settlor intent and the goal of making certain the beneficiaries have sufficient information to enforce their rights. Although it has not taken the extreme position of completely mandatory disclosure, the UTC has chosen a rule that falls primarily on the side of disclosure.
Four of the first ten jurisdictions to enact the UTC deleted entirely the sections that mandate information disclosure. This reaction is precisely what English had predicted. In response to this diverse reaction to mandatory disclosure, the UTC was modified in 2004 by bracketing those subsections to indicate that the adopting state may choose to make disclosure the default option, rather than make it mandatory. This does not appear to indicate a change in policy within the UTC. Rather, it merely recognizes that enacting states are in fierce dispute regarding the adoption of those subsections. In some sense, while making its own position on mandatory disclosure clear, the UTC abandoned its attempt to establish a truly uniform disclosure requirement among the states. In doing so, it moved away from the very purpose of its six-year quest: to create a Uniform Trust Code that is universally recognized and adopted.
C. The Chosen Disclosure Regimes in UTC States
Because of the variance among states adopting the UTC, a lack of uniformity remains regarding information disclosure. At the time this Note was written, twenty-three jurisdictions had adopted the UTC. As mentioned above, no state has adopted both UTC sections 813 and 105(b) verbatim. The result is that trustees who manage trusts governed by different states' trust laws must constantly keep themselves apprised of the often vastly differing disclosure rules in each state. The fact that most state statutes restrict, rather than increase, the disclosure requirements of trusts indicates that the majority of enacting states felt that a settlor's right to prohibit information disclosure is more important than protecting the rights of uninformed beneficiaries. This highlights the difficulty of drafting a rule in this area that balances these competing policy goals in a way that is acceptable to both sides.
The various state law provisions regarding disclosure range from slight deviations from the UTC to exclusion of entire Code provisions. The most common and interesting alterations are outlined below.
1. Deviations from the General Duty to Inform and Report Under UTC Section 813(a)
UTC section 813(a) imposes the general duty to keep the qualified beneficiaries informed about the administration of the trust and to respond to a request for information received from any beneficiary. Nearly half of the states that have enacted the UTC have departed from this first requirement. The majority of states that alter this section retain the first general duty to keep a qualified beneficiary informed of the administration of the trust, but limit the second duty to respond to a request for information from a qualified beneficiary, as defined in the relevant code. Some other states take issue with the general nature of the first part of the duty, preferring a list of specific duties.
2. Deviations from the Specific Duties Under UTC Section 813(b)
UTC section 813(b) requires the trustee to (1) furnish a copy of the trust instrument to any beneficiary upon request; (2) notify qualified beneficiaries within sixty days of acceptance of trusteeship of the trustee's name, address, and telephone number; (3) notify qualified beneficiaries within sixty days of the creation of an irrevocable trust, or the date that a revocable trust becomes irrevocable, of the trust's existence, of the identity of the settlor(s), of the right to request a copy of the trust instrument, and of the right to a trustee's report; and to (4) notify the qualified beneficiaries in advance of any change in the method or rate of the trustee's compensation. As with the duties in section 813(a), some states again limit the applicability of these specific duties to qualified beneficiaries only. Pennsylvania goes one step further and only requires these notifications after a settlor of a revocable or irrevocable trust has died or has been adjudicated incapacitated.
Interestingly, despite the tendency of many states to restrict the duty to disclose to a greater extent than does the UTC, only three states have deviated from the common law principle codified in the UTC which allows a beneficiary to receive a copy of the trust instrument in its entirety. These three states limit the duty to furnish a copy of the trust instrument to a beneficiary to those provisions of the trust that describe the beneficiary's interests, as opposed to furnishing a copy of the entire instrument. This seems to indicate that, where the trustee has the duty-whether mandatory or discretionary-to furnish a copy of the trust instrument, the majority of adopting states are reluctant to restrict the portions of the instrument that are available to the beneficiary. Presumably, these states find that if some information is going to be given to a beneficiary, that information needs to be complete.
3. Deviations from the Mandatory Aspects of the Duty to Inform Under UTC Subsections 105(b)(8), (9)
Over half of the UTC states have modified the section regarding the mandatory nature of the duty to inform such that a settlor can avoid any disclosure to the trust beneficiaries. The overwhelming response is extremely informative in the search for a balance that will be acceptable to most, if not all, states.
As mentioned above, subsections (8) and (9) of UTC section 105(b) prohibit a settlor from eliminating (1) the trustee's duty to inform beneficiaries of an irrevocable trust who are at least twenty-five years old of the existence of the trust, the identity of the trustee, and the right to request trustee's reports; and (2) the trustee's duty to respond to a beneficiary's request for information, whatever her age. Eleven states, nearly half of the enacting jurisdictions, completely removed the UTC subsections that mandate disclosure, enabling the settlor to contract entirely out of disclosure to the trust beneficiaries. These states include Arkansas, Kansas, New Hampshire, North Carolina, North Dakota, South Carolina, Tennessee, Utah, Vermont, Virginia, and Wyoming. On the other end of the spectrum, only two states, Florida and Pennsylvania, make all aspects of the trustee's duty to inform and report to beneficiaries mandatory, not merely the two aspects required under the UTC.
A few states merely tweak the mandatory duties rather than take extreme stances. For example, Alabama and Arizona deleted the first mandatory duty under the UTC, requiring only the duty to provide trustee's reports upon request. Nebraska limits the mandatory disclosure only to the more general duty to keep a beneficiary reasonably informed, similar to the common law requirement, and to the duty to respond to requests for information, rather than the more specific requirement of the UTC. Maine and Missouri limit the mandatory nature of the duty to respond to a beneficiary's request for information to a duty to respond to a request from a qualified beneficiary, rather than any beneficiary.
New Mexico adopted all of the language of the UTC's duty to inform and report, including making the two specific duties mentioned above unwaivable. However, the New Mexico legislature made one important addition: if the trustee is a regulated financial services institution and the settlor makes a knowing waiver, all of the trustee's duties to inform, including those two specific duties mentioned above, can be waived by the settlor in the trust instrument. The New Mexico approach suggests that the New Mexico legislature felt that the interests of the beneficiary would be well protected when a professional institutional trustee is appointed. Presumably, it found that the policy concerns behind requiring disclosure, particularly those relating to manipulation of a vulnerable settlor, either do not exist when a professional institutional trustee is appointed, or at least no longer outweigh policies favoring nondisclosure. Perhaps New Mexico finds institutional trustees more reliable since they are subject to regulation, unlike private trustees, and because they have reputational capital to protect.
The most interesting deviation from the mandatory nature of the duty to disclose was first adopted by Washington, D.C. and has since also been adopted by Maine, Missouri, Ohio, and Oregon. Under this rule, a settlor may avoid the requirement for disclosure to qualified beneficiaries by designating a surrogate to receive any notice, information, and reports on behalf of the beneficiaries. The surrogate is then charged with protecting the interests of the beneficiaries. The appealing benefits of this approach are discussed in more depth below.
III. The Policy Debate
When a state adopts the UTC in recognition of the need for uniformity, but alters or omits a particular section, it usually does so only where the state comes to a different policy conclusion. The policy arguments affecting trust disclosure can be separated into two distinct categories: those favoring mandatory disclosure and those opposing such a requirement. The UTC's drafters, as well as many legal scholars, favor mandatory disclosure as the better policy. However, as outlined above, the majority of deviations restrict rather than broaden the UTC duty to disclose. Therefore, the policy concerns that advocate discretionary disclosure cannot be offhandedly discarded in crafting a rule that has any hope of being adopted by most or all of the states. Until these concerns can be addressed and reconciled, trust law unification will remain elusive. This Part explores the dueling policy concerns that have caused the deviations from the UTC provisions.
A. Mandatory Disclosure
The arguments in favor of mandatory information disclosure can be broken down into those concerning the beneficiaries, the trustee, and the settlor, respectively. The key policy point in favor of mandatory disclosure relates to beneficiaries. It states that trust privacy denies beneficiaries the information they need to protect their beneficial interests in the trust and to ensure that the settlor's actual intentions are accomplished should a trustee deviate from that intent or otherwise mismanage the trust. Although a court may require access to the trust instrument should the beneficiaries initiate litigation, failure to provide any trust information outside of litigation provides a significant hurdle for the beneficiaries, who may not be aware that a breach has even occurred. The logic is as basic as it gets: one cannot protect oneself against that which is unknown. Further, trustees must often interpret a settlor's intent when administering the trust, and if the beneficiaries also have a copy of the trust instrument, the beneficiaries can recognize when even a well-intentioned trustee simply got it wrong.
Another potential reason for requiring information disclosure to beneficiaries is that trust law allows settlors to name family members as trustees without much interference. States allow family members to be selected as trustees without imposing licensing requirements or other minimum standards. In contrast, there are numerous rules applicable to trust companies or other institutions acting as trustees. Given settlors' largely unfettered ability to choose a family member as a trustee, mandatory information disclosure to beneficiaries could be justified as a necessary safeguard against potential negligence and abuse in the absence of further regulation of the trustee's capabilities. Regarding family-member trustees, sunlight is likely the best medicine.
From the trustee's perspective, trust privacy poisons the relationship between beneficiaries and trustees, causing suspicion of trustees and potentially leading to litigation. For example, in Fletcher v. Fletcher, a decision by the Supreme Court of Virginia, the trust terms mandated that the trustee, a brother of the beneficiaries, keep the management of the trust confidential and directed the trustee to only provide the beneficiaries with certain portions of the trust. When the beneficiaries' brother, the trustee, repeatedly stonewalled their information requests, the beneficiaries became concerned that the trustee was abusing his authority and felt compelled to seek judicial assistance.
Similar to the suspicion of beneficiaries towards trustees who refuse to provide information, courts often take the view that trustees that conceal information from beneficiaries and act in secret are suspect. Accordingly, a defense to claims against the trustee regularly recognized by courts is that the trustee acted in good faith. As mentioned above, surcharge litigation is on the rise and nondisclosure by a trustee, even if the terms of the trust disallow disclosure, can make defenses based on good faith more difficult to articulate. Further, disclosure can facilitate obtaining a binding consent, release, or ratification of the trustee's actions from a beneficiary.
There is also a possibility that trust terms that disallow disclosure to beneficiaries may cause a trustee to violate another common provision of trust law: that which requires a trustee to act in good faith. In contrast to the defense of good faith, which may be difficult to prove without disclosure, nondisclosure itself could potentially be the basis for a claim that the trustee violated her independent duty of good faith. If, acting consistently with the terms of the trust, the trustee denies the existence of a trust when questioned by a beneficiary (or otherwise misrepresents the terms of the trust or its assets), then arguably the trustee would not be acting in good faith with respect to the beneficiary, regardless of whether doing so was consistent with the settlor's intent.
A recent case in the North Carolina Court of Appeals, currently being appealed to the state's Supreme Court, highlights the potency of this concern. In Wilson v. Wilson, a settlor created a trust in accordance with North Carolina's Uniform Trust Code. As noted above, North Carolina entirely removed the duty to keep beneficiaries informed from the list of mandatory duties. The trustee acted entirely in accordance with the trust terms; however, the beneficiaries nevertheless sued the trustee, alleging that he had violated his duty of good faith by failing to provide them with an accounting of the trust. The Court of Appeals chastised the trial court for "relying on the commentary to our statutes, which is not binding." The court then held that two other mandatory provisions acted together to require the trustee to provide the requested accounting. Those mandatory provisions included (1) the duty of the trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries, and (2) the power of the court to take any action and exercise any jurisdiction as may be necessary in the interests of justice. The court held that the accounting "was reasonably necessary to enforce [the beneficiaries'] rights under the trust, and therefore could not be legally withheld, notwithstanding the terms of the trust instrument."' Although North Carolina was the first state to impose such a holding, any trustee operating in a UTC state that allows complete nondisclosure risks similar liability.
Additionally, because the applicable statutes of limitations begin to run upon disclosure to beneficiaries, a trust that disallows disclosure removes the protections that a trustee has against delayed litigation. Under the UTC, a one-year statute of limitations applies to claims of breaches of the trustee's fiduciary duties. The one-year period begins to run on the date that the beneficiary receives a report that adequately discloses the existence of a potential claim for breach of trust and informs the beneficiary of the time allowed for commencing a proceeding. If a trustee does not send this report to a beneficiary because the trustee is bound by the terms of the trust that mandate nondisclosure, then the trustee loses the benefit of such a short statute of limitations on suits against her.
In cases where the one-year statute of limitations does not apply, a proceeding must be commenced by the beneficiary against a trustee for breach of trust within five years after the first of the following to occur: the (1) removal, (2) resignation, or (3) death of the trustee; the (4) termination of the affected beneficiary's interest in the trust; or the (5) termination of the trust. However, until the occurrence of one of those five conditions, the trustee is vulnerable to litigation over events that may have occurred many years ago. Thus disclosure can shorten the statute of limitations on actions against the trustee from five years, if not even longer, to one year. This is "a powerful risk management tool" for trustees and also seems to parallel the very purpose of having statutes of limitations.
Finally, mandatory disclosure could also benefit vulnerable settlors. While trusts are intended to protect settlors' estates from the high costs of probate, for settlors who are vulnerable to exploitation by a manipulative trustee, there may be no estate left to protect at death. "Living trust scams" have targeted and victimized millions of elderly or incapacitated Americans. These scams bait settlors with promises of reduced probate costs and increased privacy, but often result in the depletion of all or most of the victims' estates. The scam artists, who convince the victims to authorize them as trustees of the victims' estates, "prey on older Americans' concerns that their estates will be subject to long and costly probate," and they often misrepresent the benefits and costs of creating a trust rather than a traditional will. They also frequently claim affiliation or endorsement by trustworthy organizations such as the American Association of Retired Persons ("AARP") in order to put the individuals at ease and gain their confidence." While the concerns for beneficiaries and trustees are certainly more persuasive, this practical concern for vulnerable settlors also supports mandatory disclosure.
B. Discretionary Disclosure
If disclosure protects both beneficiaries and trustees and helps to make sure that the settlor's intentions are accomplished, why, then, don't all states mandate information disclosure, at least to the level required by the UTC?
The policy concerns that drive advocates of nondisclosure begin with the fundamental belief that trust privacy promotes the settlor's control over property by protecting the assets that settlors leave to their chosen beneficiaries." Through control over the information that beneficiaries receive, settlors can preemptively insulate the trust from collateral attacks by displeased beneficiaries. Beneficiaries who disagree with the method of trust administration or the disbursement of assets have ample opportunities to object to the action or inaction of a trustee. Moreover, a beneficiary who is disappointed by the allocation of the trust assets could potentially cause significant distress for the trustee, incur costs or fees payable by the trust, and cause harm to the trust and other beneficiaries.
Advocates of permitting nondisclosure to beneficiaries argue that the settlor's intent ought to prevail over the beneficiary's desire or need for information about the trust. Donald Kozusko has noted that it is "inconsistent with a respect for private property to prohibit quiet trusts by specifying what trustees must disclose, even if it contradicts a settlor's best judgment." The trust assets, after all, were originally the assets of the settlor. During the settlor's lifetime, she would have been free to give some or all of her belongings to a relative or other party without any legal obligation to tell that person the manner in which that property had been managed. According to these scholars, while there certainly are other concerns in the administration of an irrevocable trust, the settlor's preferred method of disposition of trust assets should still reign supreme.
Individuals often utilize trusts rather than wills because of the privacy that trusts allow the decedent at death. Wills are public record. Any attempt by an individual to, for example, leave support for an illegitimate child or a more favored proportion of the estate for a favorite child becomes public knowledge for everyone, not only family, to discover. For many people, posthumous "exposure to publicity of their own personality is distasteful, if not abhorrent." Thus, the ability of trust instruments to avoid the public filings of probate and maintain the privacy of the deceased, along with the amount and type of wealth in the trust, the decedent's personal quirks, preferences among her children, and any secret love-children, makes trusts an attractive substitute to the traditional will.
Utilizing a trust rather than a will does not guarantee privacy, however. Beneficiaries may be indiscrete regarding the trust information or lose a copy of the instrument, either inadvertently or as a result of theft. Thus, those that turn to the trust rather than the will for its privacy benefits may desire to prohibit information disclosure to the beneficiaries to ensure that privacy. As my father has said, the best-kept secret is the secret kept best. In other words, if you don't want trust information to be known beyond the beneficiaries, do not tell anyone, including the beneficiaries.
Allowance of nondisclosure terms can also protect the trust property. Settlors who are concerned about litigious beneficiaries may desire to prohibit disclosure. This would provide the settlor with more control over her legacy by discouraging potential challenges to trusts. The money that would otherwise be expended in defending trusts goes where the "settlors intended-to beneficiaries rather than lawyers."
Further, knowledge of an interest in a trust may encourage certain types of beneficiaries to "take up a life of ease rather than work and be productive citizens." Warren Buffett has famously been quoted as saying that he wants to give his children just "enough money so that they would feel that they could do anything, but not so much that they would feel like doing nothing." Beneficiaries may decide not to be the productive citizens they would otherwise become. The belief, whether accurate or illusionary, in their financial security as trust beneficiaries may also incentivize them to take otherwise ill-advised financial risks in their investments or other lifestyle choices. A settlor may wish to keep the knowledge of a trust interest private in order to avoid discouraging any efforts at self-advancement that might be made by the beneficiary. Even the UTC, which favors disclosure, appears to recognize this concern by permitting nondisclosure to beneficiaries that have not reached the age of twenty-five.
Although mandatory disclosure offers trustees the protection of a shorter statute of limitations on potential claims, allowance of nondisclosure also provides significant benefits for trustees. Recently, trust reforms have favored beneficiary rights. In this "era of beneficiary empowerment," nondisclosure terms may be attractive to trustees because beneficiaries who are not informed about their interests in a trust are less likely to second-guess trustee decisions or insist on an active role in trust management.
In addition to the personal privacy concerns of the settlor, there are also strong concerns that mandating disclosure could expose beneficiaries to serious safety risks. The most famous example of this safety concern followed the 1974 kidnapping of newspaper heiress Patty Hearst. Although the kidnappers, the Symbionese Liberation Army ("SLA"), ultimately sought attention perhaps even more than money, it was the wealth of Patty's family that made her a target in the first place. Patty's grandfather, William Randolph Hearst, a newspaper tycoon and multimillionaire, left a substantial fortune to his family in a testamentary trust, whose terms were public record. While Patty's relationship to her grandfather and his wealth were commonly known, other relatives revealed in the trust could also have been at risk. After Patty's kidnapping, the trustees of this trust petitioned California's probate court to seal the Estate of Hearst probate files on the grounds that "use of the material in the probate files would expose many hitherto unnoticed persons as members of the family and reveal the locations of their homes and properties . . . ." The trustees' petition failed, however, due to the court's emphasis on the public's right to access probate records. Although the trustees were not successful in California, similar arguments have worked in different cases.
These very real safety concerns, in addition to the settlor's privacy wishes, create strong incentives for states to enact trust codes that allow settlors the option to waive information disclosure. The fact that the majority of adopting states limited rather than expanded the duty to inform indicates that any uniform law must allow for some kind of nondisclosure to beneficiaries. However, the beneficiaries' need to have access to sufficient information to protect their interests cannot be ignored.
IV. Information Surrogates: A Compromise
The UTC is intended to promote uniformity in trust law among the states, but uniformity has not been achieved with respect to the issue of information disclosure. The departure in most states from the UTC's stance on disclosure indicates that the drafters did not strike the right balance between settlors' desire for secrecy and beneficiaries' need for information. The variations among state trust laws demonstrate that many jurisdictions have concluded that the benefits of nondisclosure outweigh the benefits of mandatory disclosure. However, as the majority of legal scholarship--as well as the UTC--has established, beneficiaries' need for information sufficient to protect their interests is simply too great to ignore completely. Thus, there is a need for a body of trust law that would both allow a settlor to shape the manner and method of disclosure in order to meet the specific needs of each set of circumstances and also ensure that, no matter what level of disclosure the trust allows beneficiaries, the rights and interests of the trust beneficiaries are protected.
This Part advocates an administrative structure that allows the settlor to designate a surrogate to receive information in lieu of providing that information directly to the beneficiaries. This Part will also discuss the alternative of appointing an institutional trustee in lieu of a surrogate. While there are questions about the surrogate's own potential liability, the surrogate option provides the best solution to the disclosure debate. This option addresses concerns regarding both beneficiaries' rights and settlor privacy. The surrogate approach allows a settlor to structure her trust according to her individual circumstances without the need to shop around among the states for the most favorable trust law and an appropriate trustee who is familiar with the trust law of the chosen state. This Part also suggests that states that would otherwise completely delete mandatory disclosure requirements from their trust laws should instead consider the surrogate approach, or require appointment of an institutional trustee, to ensure that even those beneficiaries of trusts in states that prefer nondisclosure are protected.
A. The Surrogate Approach
An administrative structure already exists that presents a solution to the disclosure dilemma. This approach provides settlors with the option to maintain secrecy of any or all trust terms, including even the existence of a trust, from certain or all beneficiaries, while still insuring that the beneficiaries' interests are protected. First created in Washington, D.C., this system allows a settlor to avoid the requirement for disclosure by designating a surrogate to protect the interests of the beneficiaries and to receive any notice, information, and reports on their behalf. Maine, Missouri, Ohio, and Oregon have all followed this approach and have adopted versions of the surrogate structure, evidencing the appeal of this system.
The typical statute creating the surrogate option is similar to UTC section 105, which outlines the default and mandatory rules of the Code. Where the two systems diverge, however, is that UTC section 105 does not allow waiver of UTC section 813 duties to (1) notify qualified beneficiaries of an irrevocable trust, the identity of the trustee, and of their right to request trustee's reports, and (2) respond to information requests. In contrast, the typical state statute creating a surrogate option provides that the trust may override these particular section 813 duties, at least in situations where the trust instrument designates a person, including a beneficiary, to act in good faith to protect the interests of those beneficiaries who are not receiving reports or other information required under section 813.
For example, the Maine Uniform Trust Code provides that trust terms may prevail over the trustee's otherwise mandatory disclosure duties in one of two ways. First, these duties may be avoided where the terms of the trust waive these duties with respect to all qualified beneficiaries except the settlor's spouse during the settlor's or the spouse's lifetime.139 Second, these duties may be waived if the trust designates a surrogate to receive information on behalf of the beneficiary. Specifically, the duties are waived if the trust terms:
Designat[e] a person or persons, any of whom may or may not be a beneficiary, to act in good faith to protect the interests of the qualified beneficiaries who are not receiving notice, information or reports and to receive any notice, information or reports required under section 813, subsection 1 or 2 in lieu of providing such notice, information or reports to the qualified beneficiaries.
Thus, Maine provides for a surrogate option that provides the same mandatory disclosure required under the UTC, but shifts the trustee's duty to report to a representative--the surrogate--rather than to the beneficiaries.
The Missouri Uniform Trust Code, which also utilizes the surrogate option, offers a more compromising approach that still requires disclosure to beneficiaries in certain circumstances. Missouri does not make it possible to waive all duties of disclosure to beneficiaries. Rather, the Missouri Uniform Trust Code only allows a settlor to designate a surrogate to receive all mandatory notices as required by the statute,'4' but still requires that a trustee respond to the request of a qualified beneficiary for the trustee's reports and other information reasonably related to the administration of the trust. Therefore, if a beneficiary discovers the existence of the trust and requests information, the trustee may be required to provide that information if it is "reasonably related to the administration of the trust."
B. Giving Shape to the Surrogate Form
While the surrogate structure has gained favor in several states, it has generally been dismissed by trust scholars. The biggest criticism appears to be the failure of states to define the specific responsibilities of the surrogate to the beneficiaries. For example, Professor Alan Newman notes that the Washington, D.C. Uniform Trust Code does not provide whether reporting to a surrogate is sufficient to start the running of the statute of limitations on any potential claims by the beneficiaries against the trustee. Other questions that have been raised include whether the surrogate could bring an action on behalf of the beneficiaries against the trustee for breach of fiduciary duty and the manner in which the beneficiaries could maintain an action against the surrogate with respect to the surrogate's duty to act in good faith to protect the beneficiaries' interests. While the lack of guidance for the functioning of the surrogate model is a serious flaw, it can be overcome.
- The Specific Responsibilities of an Information Surrogate
The first logical administrative issue is determining the standards of conduct that should be applicable to the surrogate that ensure that the surrogate fulfills her duties and is held accountable. The appropriate standard of conduct could be imported from the trustee's standard, already operable in trust law, of good faith, as well as other fiduciary duties. More specific standards of conduct from preexisting sections of the UTC can also be extended to apply to the surrogate.
Several state statutes provide that the applicable standard when creating the surrogate option is the standard of "good faith." The standard of good faith is the same standard to which the trustees are held. While this standard could have different meanings in different contexts, those statutes that have instituted the surrogate option almost certainly contemplate that this term will have the same meaning for both trustees and surrogates. This also suggests that a surrogate will be held to the same fiduciary standards that apply to trustees including the duties of prudence, loyalty, and impartiality. While the UTC and the Restatement discuss fiduciary duties in language specific to trustees, the surrogate would also have similar fiduciary duties. For example, a surrogate must act prudently when making decisions on behalf of the beneficiaries, with loyalty to the beneficiaries' interests (refraining from pursuing or choosing not to pursue a claim for the surrogate's own benefit), and impartially when exercising her power, particularly when one surrogate has been designated to act on behalf of several beneficiaries.
Guidance regarding the responsibilities of the surrogate can also be found in the specific language of the UTC. As Kozusko points out, UTC section 808, which addresses persons or institutions with the power to direct the actions of the trustee, allows settlors to provide for specialized fiduciaries and to provide standards of liability for such fiduciaries. While that section is directed at the use of trust protectors and advisors rather than surrogates, the section can provide guidance on the manner in which a trustee should deal with a person who owes fiduciary duties to the beneficiaries.
As a threshold matter, section 808 discusses the interaction of a trustee with an individual who has "the power to direct" certain actions of the trustee. This section provides one of the few instances in the UTC where the duties of a third party are discussed in the context of this party's interaction with a trustee. The powers of the surrogate could not exceed the powers of a beneficiary to act on perceived breaches of the trustee's fiduciary duties. Therefore, the extent to which a surrogate's "power" could be deemed a "power to direct" sufficient to bring the surrogate under section 808 is unclear.
A person who falls under section 808's umbrella--a person "who hold[s] a power to direct"--is required to "act in good faith with regard to the purposes of the trust and the interests of the beneficiaries." While the responsibilities of persons with powers to direct and the responsibilities of surrogates are different, the similarity of this "good faith" requirement to that mentioned for surrogates in the trust code statutes of Maine, Ohio, and Oregon supports section 808's extension to the administration of the surrogate system. Section 808 further states that "the holder of a power to direct is liable for any loss that results from breach of a fiduciary duty." The standards of conduct and level of liability outlined in section 808 fit comfortably with the expectations of a surrogate. Therefore, it is practical to extend the section to cover surrogates.
In addition to specifying the requirements of someone with a power to direct, section 808 also addresses the responsibilities of a trustee while interacting with a person who has the power to direct. Section 808 instructs that the trustee shall not act in accordance with the exercise of power by such a person if the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty. This requirement would also be appropriately extended to the trustee's duties when interacting with a surrogate.
The trust code for a state can easily be revised to provide that the fiduciary standards present in other areas of trust law are equally applicable to information surrogates. This revision can be done in several ways. The various sections that outline the trustee's fiduciary duties can be broadened to also address those of the surrogate. For example, the state's equivalent of section 813 could be rewritten as follows:
If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries' respective interests. If an information surrogate receives information on behalf of two or more beneficiaries, the surrogate shall act impartially in ensuring that all the beneficiaries' respective interests are protected.
However, this approach would require numerous changes because many of the statutory provisions are written to address the specific duties of a trustee and may need to be entirely rewritten to cover the duties of a surrogate.
A better approach would be to redraft section 808 to cover those persons with "powers to direct" as well as information surrogates. This revision would require minimal effort on the part of the state legislatures and would smooth the transition to the surrogate approach. Compared to the previous example, only a subject addition would need to be included. To illustrate, section 808(d) could be altered to read:
(d) An information surrogate or a person, other than a beneficiary, who holds a power to direct is presumptively a fiduciary who, as such, is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. The information surrogate or holder of a power to direct is liable for any loss that results from breach of a fiduciary duty.
Even if a state chose to leave the section unrevised the surrogate structure could still operate. For example, where the trust law in a given state does not make reference to the responsibilities and potential liability of an information surrogate, the trust instrument could be drafted to make these standards clear, or the court could choose to apply fiduciary law standards should any litigation occur. - Statute of Limitations for Actions Against the Trustee and the Standing of the Surrogate to Bring Actions on Behalf of the Beneficiaries
Existing trust law is also competent to deal with any perceived statute of limitations ambiguities for claims against the trustee. Most states' trust codes provide that the statute of limitations begins to run when the beneficiary or a representative of the beneficiary receives a report that adequately discloses the existence of a potential claim for breach of trust and informs the beneficiary of the time allowed for commencing a proceeding. The question is whether a surrogate acts as a representative, or the functional equivalent of a representative, of a beneficiary for the purposes of the statute of limitations.
Some states have found simple ways to resolve this issue. The Maine Uniform Trust Code indicates that when surrogates are designated to receive information on behalf of certain or all beneficiaries, those surrogates are "deemed to be representatives of the qualified beneficiaries not receiving notice, information or reports for the purposes of the time limitation for a beneficiary to commence an action against the trustee for breach of trust...." The Ohio Trust Code also clarifies this issue by explicitly stating that the statute of limitations begins upon receipt of notice by the beneficiary, its representative, or a beneficiary surrogate. The advantages of having an explicit provision that establishes that the surrogate acts as a representative for the purposes of starting the statute of limitations are evident. That those trust codes and the UTC do not define "representative" indicates that the term is not limited and can easily include the surrogate. The comments to the Code, discussed below, bolster this conclusion by suggesting the breadth of the term. The failure of Washington, D.C.'s, Missouri's, and Oregon's trust laws to clarify this point is unfortunate, but not fatal to the functioning of the surrogate system.
With respect to the surrogate's ability to take action on behalf of beneficiaries, the comments to the UTC provide some guidance. While the UTC's drafters may not have predicted the creation of the surrogate approach, their official comments suggest that, had they incorporated the surrogate approach to the uniform code, a surrogate would have clear standing to bring actions against the trustee on behalf of the beneficiaries. Section 1001 of the UTC states that "[a] violation by a trustee of a duty the trustee owes a beneficiary is a breach of trust." The official comments to this section provide that "a person who may represent the beneficiary's interest under Article 3 would have standing to bring a petition on behalf of the person represented." Article 3 of the UTC outlines the responsibilities and appointment of representatives for beneficiaries of a trust. The comments to section 315, titled "Appointment of Representative," state that the term "representative" was used rather than "guardian ad litem" to emphasize that a representative in trust law serves a different role. The comments further indicate that a representative can be appointed to receive a notice on a beneficiary's behalf. The drafters' general comment to Article 3 also emphasizes that "[s]ettlors are free to specify their own methods for providing substituted notice and obtaining substituted consent." Much of this language appears to be directed toward representatives of beneficiaries who are not deemed to be "qualified beneficiaries" due to age or remote interest and therefore are not entitled to information and reports from the trustee. However, this language is broad enough to extend to the relationship between a surrogate and a beneficiary, establishing that a surrogate would have standing to bring actions on behalf of the beneficiaries. As Anne O'Brien noted, "the [general] Comment seems to bless the approach of crafting representation provisions into the terms of a particular trust itself, that is to say, naming an individual or individuals who can receive information and reports on behalf of the beneficiary and thereby represent and bind the beneficiary." - Potential Actions by the Beneficiaries Against the Surrogate
Two other important issues concerning the information surrogate deserve further analysis. First, the length of the statute of limitations for an action by the beneficiary against the surrogate for breach of the duty of good faith is not referenced in any of the state codes that have adopted the surrogate approach. Second, the manner in which the beneficiary can discover a breach is unclear. However, in practice, neither of these problems appears unsolvable.
None of the state trust codes allowing use of a surrogate indicates what the statute of limitations is for actions by the beneficiary against the surrogate. While this may seem to present a problem, a court can choose to apply the same statute of limitations currently outlined in the trust code that applies to actions against the trustee or the default statute of limitations in that jurisdiction. Under the UTC, the statute of limitations does not begin to run until the breach of trust is discovered in situations where information is not provided to beneficiaries. It is likely that the same rule would be applied by the courts in actions against surrogates. This possibility may make it difficult for a settlor to find an individual willing to act as surrogate under the trust, or at least make the appointment expensive. However, because this knowledge will be factored into the contract price for appointment, it is not clear if this would be unfair to the surrogate, particularly one who has no intention of acting in bad faith.
More troublesome is the failure of the five states with surrogate options to create a system that regularly monitors the actions of the surrogate to ensure that she is acting in good faith to protect the beneficiaries' interests with the information she receives. In practice, beneficiaries may discover evidence suggesting a breach of good faith by trustees even without mandated disclosure. For example, in a trust that limits disclosure to beneficiaries in any one of the ten states that currently allow waiver of all information disclosure, a beneficiary can discover the actions of trustees in a variety of ways: (1) the beneficiary may receive a trust distribution at odds with expectations; (2) the beneficiary may see other family members receiving greater amounts than the beneficiary is receiving; (3) if the existence of the trust is known, the trustee may be responding oddly to requests for information, thus raising the beneficiary's suspicion; or (4) information about the trust may simply be leaked from the trustee. While the actions of information surrogates might also be discovered incidentally, this is not as likely to occur since the role of the surrogate is much less active than that of a trustee. While beneficiaries may "bump up against" the truth of a breach of good faith by a surrogate, the legal system should not rely on such luck to ensure fairness.
The vulnerability of beneficiaries to a surrogate who breaches her fiduciary duties can be greatly lessened by a requirement that the surrogate be a regulated financial institution. This approach is already evident in New Mexico's trust law. As mentioned above, New Mexico mandates the same disclosure duties as the UTC. However, if the trustee is a regulated financial services institution and the settlor makes a knowing waiver, all of the trustee's duties to inform can be waived by the settlor in the trust instrument. Thus, the New Mexico legislature concluded that a beneficiary is not at risk when the surrogate is a financial institution, and that as a result the policy concerns that would advocate mandating disclosure are not as strong. This conclusion seems correct.
The requirement of an institutional surrogate can be indicated by defining the term "surrogate" to require that the designated surrogate be a financial institution, or by placing that requirement directly in the provision that allows the surrogate's appointment. Under this system, the same regulated institutions that often act as trustees would also be acting as surrogates in unrelated trusts. Therefore, not only would they be competent to monitor for breaches in the trustees' duties, but they would also be interested in performing their duties in a professional manner and enhancing their reputations as professional fiduciaries.
Alternatively, for many of the same reasons, the beneficiaries' interests would be protected in a trust that prohibits disclosure where a financial services institution has been appointed as trustee. This is precisely the position of the New Mexico trust code. However, a jurisdiction that only allows a settlor to prohibit disclosure when an institutional trustee is appointed may not be sufficient. There are many reasons that a settlor may prefer to appoint an individual as a trustee, rather than an institution. For example, an individual may not be as constrained as a regulated financial institution in the type of investments that the trustee will consider. Or, the settlor may simply prefer that a close relative administer the trust for her beneficiaries.
The precise definition of what types of institutions would satisfy the requirement for a "financial services institution" sufficient to be appointed as a surrogate or institutional trustee is beyond the scope of this Note. Generally speaking, the definition should require that the institution have a certain amount of assets under management in a fiduciary capacity. This would ensure that the institution would be competent to serve as trustee or surrogate for a trust in which disclosure to beneficiaries is prohibited.
The greatest weakness of the institutional surrogate alternative is that it would likely be expensive. However, if the settlor has determined that an individual should be the trustee and the disclosure of information should be limited or prohibited, the settlor should bear the cost of those decisions. If an institutional trustee is appointed, the statute should allow information to be withheld. Therefore, where a trustee is a regulated financial services institution, a surrogate should not be required in order for the settlor to prohibit disclosure. However, if an individual serves as trustee and the trust instrument limits or prohibits disclosure, the public policy concerns behind the argument for full disclosure should require the appointment of a financial institution as a surrogate to avoid disclosure to the beneficiaries.
The requirement of an institutional fiduciary, including an institutional surrogate, reduces the vulnerability of beneficiaries. Even with the remaining ambiguity regarding the surrogate's own liability, the surrogate option provides the most appealing solution to the disclosure debate. It addresses both sides of the debate and allows a settlor to structure her trust in the particular manner needed in her individual circumstances.
V. Conclusion
The debate over the extent and mandatory nature of a trustee's duty to provide beneficiaries with information is a contentious one. Two fundamental and well-established standards in trust law are at issue. First, settlors have broad latitude to construct their trusts as they see fit. Second, trusts exist solely for the benefit of the beneficiaries thereof. While these two principles have coexisted for many years, the complexities of their interaction in trust disclosure could be sidestepped in common law judicial decisions where the equities in a particular case made one of the principles yell slightly louder than the other.
The codification and unification of trust law in the UTC made this ad hoc dance less possible. The time had come to choose sides. With uniformity in mind, the drafters of the UTC constructed the trustee's duty to inform as a partially waivable duty, but with certain responsibilities that the settlor could not waive. The UTC was attempting to find a compromise between the strong policies mandating information disclosure and a settlor's freedom to choose the manner in which she wants to dispose of her property, including in secrecy.
While the drafters of the UTC are correct that access to information is essential to beneficiaries, not all states were ready to impose such constraints on individuals' ability to choose the terms of their trust. The surrogate structure offers the most readily accessible solution to the disclosure debate that will protect the beneficiaries' interest while still allowing contract freedom for settlors, which is valued highly by many states. The initial surrogate approach in Washington, D.C. does not provide much explicit guidance regarding the exact responsibilities, authority, or liability of the surrogate. But while these issues are very important, they are not as ambiguous as they might at first seem.
Reconciling existing trust law principles and the more refined versions of the surrogate approach outlined above can provide answers to these concerns. At least one proponent of allowing nondisclosure has proposed that the current lack of guidance should not distract legislatures from adopting the surrogate approach. As Donald Kozusko has articulated, "[i]f accountability can be managed by other means, does it still make sense to thwart a settlor's desire to minimize disclosure to beneficiaries?" Kozusko proposes that the surrogate structure creates opportunities to design what he calls "quiet trusts" to satisfy many legitimate objectives, but without tolerating mismanagement.
The surrogate ensures that the trustee remains accountable for her actions. In addition, use of a surrogate allows the settlor to prevent the disclosure of information if the settlor so desires. Therefore, a closer look by the states at the surrogate structure is warranted in light of its ability to bridge the gap between trust scholars and the UTC, on the one hand, and the majority of UTC-enacting states that eliminated the mandatory disclosure requirement, on the other. This Note began that process. This is not a trust panacea--there are still ambiguous aspects of the liability the surrogate may face in the event of a breach of the duty of good faith. Nevertheless, this approach could increase the number of states that would enact disclosure requirements for someone who has the beneficiary's interests in mind, thereby also promoting the uniformity so important to trust law.
