Can any trust beneficiary can compel a trustee to account?- Does the type of contingency make a difference?
While trust beneficiaries generally can seek to compel a trustee to render a formal accounting, subject to statute and certain timing requirements, the rule is not the same for contingent beneficiaries though contingent beneficiaries may still achieve some relief.
A contingent beneficiary is a person or entity that only receives a distribution if a certain event happens, typically the death of another beneficiary, transpires following execution of a trust but before the trust is closed. For example, a trust grantor may provide for their children or, if any of them die before the grantor dies, the provision may jump to the pre-deceased child’s children, the grantor’s grandchildren. The language of any particular trust must be observed very carefully.
New Jersey has adopted the Uniform Trust Code which provides, in relevant part, that a trustee has the duty “to disclose” trust issues, the books and records, and the details of the trust’s administration. See 3B:31-67. This applies to qualified beneficiaries which are defined as actual beneficiaries and contingent beneficiaries that send the trustee a request for info.
This 3B:31-67 disclosure is not a true judicial “accounting” but in practical terms, this relief should grant a contingent beneficiary the data necessary to understand the trust assets, trust income, the distributions made to date, and the expenses of running the trust. With that data, a contingent beneficiary may be able to determine what their future interest could be. At minimum, the contingent beneficiary should be able to determine whether there is cause for any alarm regarding the trustee’s administration.
New Jersey statutes and case law do not make distinctions between the types of contingency. Either a beneficiary has the immediate right to a distribution or there is some future event that must happen before the beneficiary has the right to a distribution. It is irrelevant if the event is within the control of the trustee or any other person, or whether it is a question of timing or inevitability.
Prior to the adoption of the Uniform Trust Code in New Jersey, some legal scholars presumed that the Restatement 2nd, a comprehensive legal treatise originally published in 1959, would be the model for New Jersey’s probate legislation. This has been the cause for confusion among attorneys even to this day. The Restatement 2nd provides that “[t]he trustee may be compelled to account not only by a beneficiary presently entitled to the payment of income or principal, but also by a beneficiary who will be or may be entitled to receive income or principal in the future. This is true even though the interest of the beneficiary is contingent.” §172(c). As a matter of modern practice in New Jersey, this language is counter-productive as it expresses a wish and does not state the actual policy of the state.
Some trust agreements provide a separate right for contingent beneficiaries to be included on trust administration information that standard beneficiaries are entitled to receive. As stated above, any trust agreement must be scrutinized carefully to determine one’s rights. Having an estate attorney assist with this process is always advisable.
If you are looking for additional details on this topic or if you require advice about your situation, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
Written by Christopher Balioni, Esq. of Hanlon Niemann & Wright