Comparison of New Jersey and Pennsylvania: A Trustee’s Duty to Report and Inform
A trustee’s duty to inform and report as delineated in the Pennsylvania Uniform Trust Act (20 Pa. C.S. §§7701- 7799.3) is substantially different from the New Jersey Uniform Trust Code (N.J.S.A. §3B:31-1-84). Most notably, the New Jersey Uniform Trust Code does not have the same requirements to notify beneficiaries of their interest in a trust.
N.J.S.A. §3B:31-67 (Duty to Disclose and Discretion to Periodically Report) states as follows:
a. A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of a trust.
b. A trustee, upon request of a beneficiary, shall promptly furnish to the beneficiary a copy of the trust instrument.
c. A trustee seeking the protection of N.J.S. 3B:31-74 may provide the beneficiaries with a report of the trust property, liabilities, receipts, and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets, and, if feasible, their respective market values.
Section (a) of the New Jersey Uniform Trust Code above — dealing with the general duty to disclose and report — is nearly identical to the Model Uniform Trust Code section (a).[1] Pennsylvania, unlike New Jersey, also adopted the Model Uniform Trust Code sections on notification to a beneficiary of her interest in a trust. See Uniform Trust Code Section 813 and 20 Pa C.S. §7780.3. Those sections on notification lay out specific instances in which trustees must notify beneficiaries, within a certain period, of their interest in a trust. New Jersey has no such analogues requirements.
The comments to the Model Uniform Trust Code explain that section (a) above limits the duty to inform to qualified beneficiaries, so that trustees do not have to furnish trust information to beneficiaries with remote remainder interests, unless those beneficiaries make a request. The comments are instructive as to the scope of “material facts”:
This may include a duty to communicate to qualified beneficiary information about the administration of the trust that is reasonably necessary to enable the beneficiary to enforce the beneficiary’s rights and to prevent or redress a breach of trust. With respect to the permissible distributees, the duty articulated in subsection (a) would ordinarily be satisfied by providing the beneficiary with a copy of the annual report mandated by subsection (c). Otherwise, the trustee is not ordinarily under a duty to furnish information to a beneficiary in the absence of a specific request for the information. However, special circumstances may require that the trustee take affirmative steps to provide additional information. For example, if the trustee is dealing with the beneficiary on the trustee’s own account, the trustee must communicate material facts relating to the transaction that the trustee knows or should know. Furthermore, to enable the beneficiaries to take action to protect their interests, the trustee may be required to provide advance notice of transactions involving real estate, closely-held business interests, and other assets that are difficult to value or to replace. The trustee is justified in not providing such advance disclosure if disclosure is forbidden by other law, as under federal securities laws, or if disclosure would be seriously detrimental to the interests of the beneficiaries, for example, when disclosure would cause the loss of the only serious buyer (internal citations omitted).
This reporting requirement does not apply to revocable trusts, as the trustee’s duties are owed exclusively to the Settlor during the period in which a trust is revocable. N.J.S.A. §3B:31-44.
Further, the comments to the Model Uniform Trust Code explain that the term “report” instead of “accounting” is used in the Code to negate any inference that the report must be prepared in any particular format or with a high degree of formality. In fact, the comments suggest that the reporting requirement may be satisfied by providing the beneficiaries with copies of the trust’s income tax returns and monthly brokerage account statements. The key factor is not the format chosen by the trustee but whether the report provides the beneficiaries with the information necessary to protect their interests.
Another reason to provide such a report would be to seek the protection of N.J.S.A. §3B:31-74 (emphasis added), which states in part:
a. A beneficiary may not commence a proceeding against a trustee for breach of trust more than six months after the date the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.
b. A report adequately discloses the existence of a potential claim for breach of trust if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.
c. If subsection a. of this section does not apply, a judicial proceeding by a beneficiary against a trustee for breach of trust may be commenced only within five years after the first to occur of:
(1) the removal, resignation, or death of the trustee;
(2) the termination of the beneficiary’s interest in the trust; or
(3) the termination of the trust.
Notwithstanding the foregoing, this subsection shall not operate to bar any proceeding by a beneficiary until five years after such beneficiary: (a) has attained majority; (b) has knowledge of the existence of the trust; and (c) has knowledge that such beneficiary is or was a beneficiary of the trust.
d. For purposes of subsection a. of this section, a beneficiary is deemed to have been sent a report if:
(1) in the case of a beneficiary having capacity, it is sent to the beneficiary; or
(2) in the case of a beneficiary who under article 2 of this act may be represented and bound by another person, if it is received by his representative.
Certainly, with the New Jersey Uniform Trust Code only in effect for several months, these provisions are subject to some debate and interpretation. And of course the analysis entails an assessment of the circumstances of each trust, under the key definitions of the New Jersey Uniform Trust Code, such as: “qualified beneficiaries” (N.J.S.A. §3B:31-3); and “virtual representatives” (under Article 2, including N.J.S.A. §§3B:31-13, 14, 15, 16, and 17).
Nonetheless, two points are critical. First, disclosure pursuant to the section above is not limited to qualified beneficiaries, but to all beneficiaries. However, a report does not need to be furnished to all the beneficiaries of the trust, since subsection (d) allows for a report to be given to a representative of a beneficiary (as outlined in Article 2 — Virtual Representation — of the statute).
Second, if a beneficiary is not covered by subsection (a) — the beneficiary has not received a report or her representative has not received a report — then beneficiaries have 5 years to bring a claim for breach of trust. As highlighted above, the 5 years does not begin to toll until the beneficiary has knowledge of the existence of the trust. Thus, in circumstances where this subsection applies, the beneficiaries of a trust should be notified of their interest in the trust to trigger the 5-year time limit.
[1] See Uniform Trust Code, Section 813: (a) A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.