TRUSTEE DUTY TO INFORM AND REPORT

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In Pennsylvania,  Per The Uniform Trust Act,  If A Holder Of A Power Of Withdrawal Has Less Than An Unrestricted Power To Transfer To Himself Or Herself The Entire Legal And Beneficial Interest In All Or A Portion Of Trust Property, The Rights Of Other Trust Beneficiaries Are Not Entirely Subject To The Control Of That Holder, And The Mandatory Duty Of The Trustee To Inform And Report Is Owed Not Only To That Holder, But Also To The Other Beneficiaries Of The Trust.

 

A.  Under The Uniform Trust Act, Only The Holder Of An Unrestricted Power Of Withdrawal From A Trust Has The Rights Of A Settlor Of A Revocable Trust To The Extent Of The Property Subject To The Power During The Period That The Power May Be Exercised.   Thus,  The Rights Of The Beneficiaries Of Such Trust And The Duties Of The Trustee Of Such Trust Are Owed Exclusively To That Holder During The Period That The Unrestricted Power May Be Exercised By That Holder.

See 20 Pa. C.S. § 7753.  Trustee’s duties; powers of withdrawal – UTC 603.

(a)  Power of settlor.–Regardless of the legal capacity of the settlor, the rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor while a trust is revocable.

(b)  Holder of power of withdrawal.–The holder of a power of withdrawal has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power during the period the power may be exercised.

See 20 Pa. C.S. § 7703.  Definitions – UTC 103.

” Beneficiary.”  A person that:

(1)  has a present or future beneficial interest in a trust, vested or contingent; …

 “Power of withdrawal.”  The unrestricted power of a beneficiary, acting as a beneficiary and not as a trustee, to transfer to himself or herself the entire legal and beneficial interest in all or a portion of trust property…

“Settlor.” A person, including a testator, who creates or contributes property to a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person’s contribution except to the extent another person has the power to revoke or withdraw that portion.

“Trustee.” Includes an original, additional and successor trustee and a cotrustee.

 

B.   Any Restriction On The Holder’s Power Of Withdrawal , Including A Power To Withdraw The Greater Of The Amount Specified In Section 2041(b)(2) Or 2514(e) Of The Internal Revenue Code Of 1986 Or Any Lesser Amount Determined By Reference To One Or More Of These Provisions,  Disqualifies That Power From Being Treated As A Holder’s Power Of Withdrawal.

Accordingly,  The Holder Of Any Restricted Power Of Withdrawal From A Trust Does Not Have The Rights Of A Settlor Of A Revocable Trust To The Extent Of The Property Subject To That Restricted Power During The Period That It May Be Exercised.  Thus,  The Rights Of The Beneficiaries Of Such Trust And The Duties Of The Trustee Of Such Trust Are Not Owed Exclusively To That Holder During The Period That Such A Restricted Power Of Withdrawal May Be Exercised .

See 20 Pa. C.S. § 7703.  Definitions – UTC 103.

“Power of withdrawal.”  The unrestricted power of a beneficiary, acting as a beneficiary and not as a trustee, to transfer to himself or herself the entire legal and beneficial interest in all or a portion of trust property. However, a power to withdraw the greater of the amount specified in section 2041(b)(2), 2503(b) or 2514(e) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 2041(b)(2), 2503(b) or 2514(e)), or any lesser amount determined by reference to one or more of these provisions, may not be treated as a power of withdrawal.

See 26 U.S. Code § 2041 – Powers of appointment

(b) Definitions

For purposes of subsection (a)—

(2) Lapse of power

The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The preceding sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property, which could have been appointed by exercise of such lapsed powers, exceeded in value, at the time of such lapse, the greater of the following amounts:

(A) $5,000, or

(B)  5 percent of the aggregate value, at the time of such lapse, of the assets out of which, or the proceeds of which, the exercise of the lapsed powers could have been satisfied.

See 26 U.S. Code § 2514 – Powers of appointment

(e) Lapse of power

The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The rule of the preceding sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts:

(1)  $5,000, or

(2)   5 percent of the aggregate value of the assets out of which, or the proceeds of which, the exercise of the lapsed powers could be satisfied.

 

C.  Upon The Request Of A Settlor Of A Trust Or The Beneficiary Of An Irrevocable Trust,  A Trustee Has A Mandatory Duty To Inform And Report Related To The Trust’s Administration Via At Least Annual Written Reports.

See 20 Pa. C.S. § 7705.  Trust instrument controls; mandatory rules – UTC 105.

(b)  Mandatory rules.–Notwithstanding a contrary provision in the trust instrument, the following rules apply:

8)  The duty of a trustee under section 7780.3 (relating to duty to inform and report).

See 20 Pa. C.S. § 7780.3.  Duty to inform and report.

(a)  Duty to respond to requests.–A trustee shall promptly respond to a reasonable request by the settlor of a trust or by a beneficiary of an irrevocable trust for information related to the trust’s administration. ….

(g)  Change in trusteeship.–

(1)  Each time there is a change in trusteeship of any trust, the trustee shall notify the settlor in writing of the change.

(2)  Each time there is a change in trusteeship of any trust whose settlor is deceased or of an irrevocable trust whose settlor has been adjudicated incapacitated, the trustee shall notify the current beneficiaries in writing of the change.

(3)  Notice under this subsection shall include the trustee’s name, address and telephone number.

(h)  Trustee’s notice to any beneficiary at any time.–Apart from the requirements of this section, the trustee may send the notice described in subsection (i) to any beneficiary of the trust at any time.

(i)  Contents of notice.–Except as provided in subsection (g), any notice under this section shall be written and convey the following information:

(1)  The fact of the trust’s existence.

(2)  The identity of the settlor.

(3)  The trustee’s name, address and telephone number.

(4)  The recipient’s right to receive upon request a copy of the trust instrument.

(5)  Each current beneficiary’s right to receive, at least annually, upon request, periodic written financial reports concerning the trust.

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