Having represented both professional and lay trustees for more than 20 years, my clients have asked me on many occasions about the amount of information they should or must provide their beneficiaries. While the quantity and quality of the information a trustee must provide to a beneficiary depends on the facts of each case, New Mexico law does provide some guidance.
New Mexico adopted the New Mexico Uniform Trust Code (NMUTC) in 2003 and revised it in 2007. The 2003 enactment and revision describe what information trustees must provide to a beneficiary. The general rule is that the trustee must keep the beneficiaries of the trust reasonably informed about the administration of the trust.
The code goes further to say that “the trustee has an obligation to provide material facts necessary for the beneficiaries to protect their interests.” Generally, a trustee should respond promptly to a beneficiary’s request for information that relates to the administration of the trust. The NMUTC is intentionally flexible concerning the format of the information the trustee must provide.
How to provide a beneficiary information
A trustee should generally provide a report that has a beginning balance at the beginning of the accounting period and an ending balance and shows all debits and credits between those points in time. Typically, the beginning and ending balances would be in the form of a balance sheet, which would show the inventory of the trust at those two points in time. The credits and debits should show unrealized gains and losses within the trust portfolio between the beginning and ending dates of the report.
The NMUTC deliberately does not use the word ‘accounting’ when describing what information a trustee must give to a beneficiary. That is because the drafters of the uniform law upon which the NMUTC is based wanted to ensure the law wasn’t requiring formal accountings. Instead, our law speaks to providing a trustee’s report, and the format of the report is intentionally flexible. The main test is to make sure that the trustee provides enough information for the beneficiary to understand the operation of the trust and to protect his or her interests. What that means is the trustee should disclose particularly important things that occur during the administration of the trust in a trustee’s report.
Quality of information
There are two other portions of the NMUTC where the quality of the information provided to the beneficiary becomes important. One is under the NMUTC where a trustee may trigger a one-year statute of limitations if he or she provides a beneficiary with a report and states that the time limit has begun. To effectively trigger the one-year limitation period, the report must adequately disclose the existence of a potential claim for breach of trust and provide the beneficiary with a statement of the amount of time allowed to commence legal proceedings against the trustee. The question of what the law considers ‘adequately disclosed’ under that section becomes very important. What’s adequate under this section is determined by whether the information is enough for the beneficiary to know whether he or she has a potential claim.
There is a second provision in the NMUTC which allows the trustee to start the clock.
That provision allows the trustee to initiate a four-month statute of limitations to contest the validity of the trust. A trustee might consider sending such a notice if there are rumblings by a beneficiary that the trust agreement or amendment might be invalid.
To initiate the four-month limitation period, the trustee must provide proper notice to the beneficiary, including a copy of the trust along with your name and address, a notice informing the beneficiary the trust is in existence, and the time allowable to commence a proceeding.
Finally, if the trustee is concerned about his or her liability over a particular transaction and is considering asking a beneficiary to consent to a decision which was or which may be made, it’s important that the trustee provide the beneficiary with enough information to gauge whether he or she should agree to that decision. If the trustee does not provide enough information, the beneficiary’s consent to that transaction may not be binding in a later legal proceeding over the bona fides of that act.
Those are just a few areas of New Mexico law that deal with the quality of information trustees may be duty-bound to provide beneficiaries. A trustee must remember that the beneficiary of a trust generally has broad rights to information about the trust -- although not unlimited -- and can make a demand on the trustee for the same. If the trustee refuses to provide the information, depending on the request made, the beneficiary may file an accounting lawsuit to ask the court for an order requiring the trustee to cooperate.
The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.
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