Law Offices of James W. Mallonee, P.A.
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Trust Privacy – Disclosure You May Have to Make to Your Beneficiaries

Florida’s new trust code, Chapter 736, was enacted in 2006 and with it came the requirement that the person who had the trust instrument prepared for them and all of their financial information may have to be disclosed to your beneficiaries. The term that is used to define those individuals who are entitled to such disclosure are called “Qualified Beneficiaries.” This term is new to Florida’s trust code but has been in existence for some time under the statutes of other states.

A Qualified Beneficiary is generally viewed as a living beneficiary whose status is determined at a specific point of time. If at a specific point in time the initial beneficiary (e.g. a spouse) were to die, the successor beneficiaries are considered Qualified Beneficiaries along with the spouse. Typically the date that Qualified Beneficiaries are determined is the date that the person who signed their own trust document (the “Grantor”) dies.

For purposes of showing how disclosure of the trust instrument and financials might have to be exposed, let’s presume that the Grantor has three descendants, a spouse and two children. In this situation the Grantor provided in his or her trust that at their death the income generated from the residue of the estate would pass to his surviving spouse and at the spouse’s death the remaining principal is to flow to the Grantor’s children outright. Let’s further presume that the surviving spouse has the right to annually withdraw the amount of $5,000.00 or 5% of the remaining principal balance for any need he or she wishes. Lastly let’s assume this is a second marriage for the Grantor, but not the surviving spouse and the children are from the Grantor’s first marriage. The Grantor has now died and his or her estate is now being administered by the nominated successor Trustee.

So what’s problem with this? Nothing, provided that the Grantor does not mind exposing the trust and the financial wealth of the trust to his children while the surviving spouse is receiving trust income for the remainder of his or her life. On the other hand, the Grantor may not want to expose the extent of the amount of wealth to be distributed to the surviving spouse or amounts gifted to other beneficiaries (e.g. charities) at his or her death.

In the scenario described above, the successor Trustee is bound to serve notice of the trust and its financial structure to the Grantor’s surviving spouse and children immediately and at least once a year. The reason for this is that Florida’s trust code states that a Qualified Beneficiary is entitled to information about the assets and liabilities of the trust and the particulars relating to its administration along with a copy of the trust instrument. However, the code also provides an alternative to the Grantor to avoid such disclosure. It is called a Designated Representative.

A Designated Representative is a person or persons who are nominated within a trust document to represent and bind a beneficiary. The Designated Representative may receive any notice, information, accounting, or report for such beneficiaries. In essence, the Grantor can shield the Trustee from having to expose the financial make-up of the trust and its distribution. Family harmony can be maintained since the surviving spouse will not have to field accounting questions and deal with the Grantor’s children should he or she elect to purchase a new car using trust funds to do so.

More importantly, if a trust has multiple beneficiaries who do not get along, the Designated Representative can receive and review the accountings and distributions from the trust without having to serve their findings on the actual beneficiaries of the trust. By doing so, the beneficiaries are bound by the Designated Representative’s actions. Of course if the designated representative commits an omission or acts in bad faith, they could be liable for that action.

Who can serve as a Designated Representative? Any person can serve as a Designated Representative; provided the person is not presently serving as the trust’s trustee. In addition, another beneficiary of the Grantor’s trust can serve as the Designated Representative provided the Grantor specifically named that individual in their trust to serve as such. A Designated Representative can also be the spouse, grandparent, or descendant of a grandparent (e.g. uncle or cousin) of a beneficiary.

There is some confusion in the legal community as to whether trust notices and accountings must be served on Qualified Beneficiaries while the Grantor is alive. However, the majority seems to agree (along with the author) that while the Grantor is alive and the trust remains revocable, a trustee has no duty to inform, notify or account to the Qualified Beneficiaries.

No doubt there may be some things that are better left undisclosed and if you are concerned about exposing the extent of your trust instrument or its financial nature, you should consider meeting with the attorney of your choice and discuss your concerns about what can and cannot be disclosed to your ultimate beneficiaries. There is little doubt that the preservation of harmony within a family cannot be overemphasized and should be seriously considered by nominating a Designated Representative within your trust following your death. It could be best investment you make.

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