FLYNN: Trust beneficiary might be the best job around

It has always seemed to me that one of the better jobs you can have is that of trust beneficiary. Here, someone called the settlor (who is usually by now dead) has left money in the hands of a trustee. The trustee distributes the money pursuant to instructions from the settlor contained in a written document called the trust instrument.  

Despite its apparent advantages, being a trust beneficiary isn’t always easy. There can be considerable friction between the beneficiary and the trustee who, for the most part, is working for the settlor and has a substantial amount of discretion. For example, assume the trust instrument states that the money in the trust is to be used for the beneficiary’s education. The trustee thinks this means, say, Harvard. The beneficiary thinks it means the Bob Bondurant School of High Performance Driving, where a new Porsche also will be necessary to achieve maximum pedological benefit.

In addition to questions about the purpose for which distributions from a trust are to be made, issues can arise concerning the timing of distributions, the trustee’s investment strategy, how funds in a trust are shared among multiple beneficiaries, compensation paid to the trustee, etc.

One other not infrequent area of tension between beneficiaries and trustees has to do with the amount and type of information the trustee provides to the beneficiary. Sometimes settlors instruct trustees to keep beneficiaries in the dark for fear that knowledge of the trust will, as one commentator put it, cause them to “take up a life of ease rather than work and be productive citizens.”

Offering some guidance on this subject is a Colorado statute that addresses a trustee’s duty to provide information to a trust beneficiary. The statute requires a trustee to keep beneficiaries “reasonably informed of the trust and its administration.” It goes on to say that, “upon reasonable request,” a trustee must provide a beneficiary with a copy of those portions of the trust instrument that “describe or affect” the beneficiary’s interest, together with “relevant information about the assets of the trust and the particulars relating to the administration” of the trust. This statute also says that a beneficiary, again “upon reasonable request,” is entitled to an annual “statement of the accounts of the trust.” Although this statute makes it clear that beneficiaries are at least entitled to some information about their trust, as the author of a recent article on this subject noted, “reasonableness is a somewhat elastic concept ….”

If disputes do arise between trustees and beneficiaries, the judicial system is standing by to serve as a dispute resolution forum.  However, beneficiaries thinking about suing their trustee need to worry that the trustee’s legal fees could be paid out of the trust. This can quickly make suing your trustee the rough equivalent of suing yourself.

Despite these possible problems, if you think being a trust beneficiary might be right for you, I need to caution you that these jobs are hard to come by and generally require that you have chosen your parents carefully.

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Jim Flynn is a private attorney at Flynn Wright & Fredman LLC in Colorado Springs. The firm primarily represents clients in the real estate, financial services and small-business sectors. Reach him at jtflynn@fwflegal.com.