Highlights of the 2011 Trust Act

This short article is intended to give the reader an introduction to the 2011 Trust Act that went into effect January 1, 2012. You may learn more about the 2011 Trust Act by going online at the State of Washington Legislative website www.leg.wa.gov, clicking on "Find Bill", choosing the 2011 Session, and searching for Bill 1051. The new Trust Act presents significant challenges to Trust drafting and has invoked new rights and remedies available to beneficiaries. If you are currently a Trustee of an Irrevocable Trust it is important that you schedule an appointment with your attorney to go over the expanded obligations that the new Trust Act mandates. There are significant amendments being considered by the Legislature which hopefully will clarify the Act. I predict that administering Trusts will be more expensive than in the past. You will want to pay particular attention to the required notifications discussed below.

The requirements of this law do not impact a Revocable Living Trust (Grantor Trust) commonly used in Estate planning during the lifetime of the Grantor/Trustor. However; many Revocable Living Trusts have a component that becomes Irrevocable upon a future event. A common event that converts the Revocable Living Trust into an Irrevocable Trust would be the death of the Grantor or in the case of a married couple one of the Grantors. It is at this point in time that the Irrevocable Trust needs to have its own Tax Identification number with the IRS, the Trustee is required to file tax returns (1041 Fiduciary tax return) and the new 2011 Trust Act becomes important to comply with. Some Irrevocable Trusts are irrevocable at their creation.

The Trust Act among other things provides a framework for the type of information that a Trustee must report to the trust beneficiaries. The Trustee shall keep all persons interested in the Trust reasonably informed about the administration of the Trust and be kept apprised of any material facts necessary for them to protect their interest. Because of the general duty to disclose factors that will "reasonably inform" the beneficiary, I wonder if disclosure of unique factors of a particular Trust might also be required to provide full disclosure? There is still uncertainty how this Act will be interpreted by the Courts. I will discuss below two important features:

  1. There is a duty within 60 days of accepting the job as a Trustee of an Irrevocable Trust for the Trustee to notify all beneficiaries of a variety of factors. RCW 11.97.010(2)(a) lists four required disclosures. In addition RCW 11.98.072(1) imposes a high burden duty upon the trustee which states "A trustee must keep all qualified beneficiaries of a trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests." See your attorney when taking on the job as Trustee and think twice whether you want the liability of this job in the first place. This portion of the law is not retroactive and applies to Trusts that become Irrevocable after December 31, 2011.
  2. There is also an obligation to provide an annual report to the beneficiaries, the details of which can be found at RCW 11.96A.070. The above cited section of law has eight separate items that are material facts to be disclosed to the beneficiaries. I believe this portion of the act applies to all Irrevocable Trusts and actually is a benefit because of the "safe harbor" if the Trustee issues his/her annual report with the statutory 8 disclosures included.

You are again invited to read the 2011 Trust Act on the website and/or consult with your attorney to discuss specific provisions that might apply to your situation