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The Trustee’s Duty to Inform and Report under the New Wisconsin Trust Code

Carolyn A. Hegge

July 15, 2014

The new Wisconsin Trust Code creates default rules that apply to trusts unless they are overridden by the terms of the trust agreement. This article discusses a default rule that is likely to be overridden often – the rule requiring a trustee to keep the qualified beneficiaries of an irrevocable trust informed about the administration of the trust.

Trustee’s Duty to Keep Qualified Beneficiaries Informed about the Administration of a Trust. Trustees in Wisconsin have always had a duty to provide information to the beneficiaries of a trust. However, it was never clear what information the beneficiaries were entitled to receive from the trustee. The new Wisconsin Trust Code (WTC) addresses this issue by creating a default rule that requires the trustee of an irrevocable trust to keep the “qualified beneficiaries” of the trust “reasonably” informed of the administration of the trust and to provide certain reports and information to the “qualified beneficiaries” each year.

Who are the Qualified Beneficiaries? Generally, the “qualified beneficiaries” are the “current beneficiaries” (i.e., the persons currently entitled to receive distributions from the trust) and the “remainder beneficiaries” (i.e., the persons entitled to receive distributions from the trust after the interests of the current beneficiaries terminate) of an irrevocable trust. A qualified beneficiary’s rights will vary depending upon whether he or she is a current beneficiary or a remainder beneficiary.

What Specific Reports and Information must the Trustee provide to the Qualified Beneficiaries? One of the new WTC default rules requires a trustee, among other things, to provide each current beneficiary of an irrevocable trust with an annual inventory of the trust assets and an annual report of the trustee’s administration of the irrevocable trust. The remainder beneficiaries of an irrevocable trust are entitled to receive these documents only if they request them. Some Settlors (i.e., the creators of a trust) will not like this new default rule.

Overriding the Default Rules. The following example shows how and why the WTC default rules might be overridden. Husband and wife (i.e., the Settlors) create a joint revocable trust to hold all of their assets. If one of the spouses dies, both spouses want to ensure that the deceased spouse’s share of the trust assets will pass to the deceased spouse’s children at the surviving spouse’s death even if the surviving spouse remarried.

If the spouses left their shares of the joint revocable trust to each other, the surviving spouse could do whatever he or she wanted with the deceased spouse’s share of the trust assets, including disinheriting the deceased spouse’s children. The spouses do not want that to happen so, instead of leaving their shares to each other, their joint revocable trust agreement creates a new irrevocable trust (the “Family Trust”) at the first spouse’s death to hold the deceased spouse’s share of the trust assets.

The surviving spouse will be the sole beneficiary of the Family Trust during his or her lifetime (i.e., the current beneficiary) and will receive distributions of income and principal from the Family Trust as needed for his or her support. When the surviving spouse dies, the assets remaining in the Family Trust will be distributed to the children of the first spouse who died (i.e., the remainder beneficiaries).

How will the new WTC default rules affect the Family Trust?  Under the WTC default rules, the trustee is required to keep all of the qualified beneficiaries of the Family Trust reasonably informed of the administration of that trust. The qualified beneficiaries are the surviving spouse (i.e., the current beneficiary) and the deceased spouse’s children (i.e., the remainder beneficiaries).

The Settlors are happy to have the new WTC default rules apply to the surviving spouse because they want the surviving spouse to be fully informed about the administration of the Family Trust. However, the Settlors value their privacy and they do not want the WTC default rules to apply to their children while the surviving spouse is alive because they do not want their children to have information about the surviving spouse’s financial resources or spending habits.

How can the Settlors keep the WTC default rules from applying to their children? The Settlors can override the new WTC default rules by including a provision in their joint revocable trust agreement directing the trustee of the Family Trust to not provide any reports, information, or accountings of any kind to their children during the surviving spouse’s lifetime.

Other Reasons for Limiting a Beneficiary’s Right to Information about a Trust. Preserving a surviving spouse’s privacy is not the only reason why a Settlor might want to limit the information provided to the qualified beneficiaries of an irrevocable trust. Other reasons include the belief that a young beneficiary will lose his or her incentive to work hard if he or she knows the extent of the assets in his or her trust, the belief that a beneficiary with spendthrift tendencies will not try to change his or her spending habits if he or she knows the extent of the assets in his or her trust, and the concern that a business owned by a trust could be harmed if sensitive information about the business was disclosed to the beneficiaries of the trust.

What should you do? If you have a revocable trust that provides for the creation of an irrevocable trust at your death or the death of your spouse, you should ask yourself whether the WTC default rules discussed in this article should apply to that irrevocable trust. If the answer is “no,” you should amend your revocable trust to override the WTC default rules to make the trustee’s duties conform to your wishes.

Exceptions. The WTC became effective on July 1, 2014. The trustee’s duty to provide an annual inventory and an annual account to qualified beneficiaries of an irrevocable trust does not apply to a trustee who was in office before July 1, 2014, to an irrevocable trust created before July 1, 2014, or to a revocable trust that became irrevocable before July 1, 2014.

If you have any questions about how the information in this article may affect you or your business, please contact Carolyn Hegge at chegge@stroudlaw.com or (608) 257-2281 or your Stroud attorney.


DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.