Tennessee § 35-15-813 - Duty to inform and report.

§ 35-15-813. Duty to inform and report.

A trustee shall keep the beneficiaries of the trust who are current mandatory or permissible distributees of trust income or principal, or both, reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. If a trust is divided into separate shares for the sole benefit of a single beneficiary or a separate group of beneficiaries, the trustee's duty shall apply only to the beneficiary or beneficiaries of the separate share of the trust. Unless unreasonable under the circumstances, a trustee shall respond in a reasonable amount of time to a qualified beneficiary's request for information related to the administration of the trust. Additionally, a qualified beneficiary shall reimburse the trustee for any reasonable expenses incurred in responding to requests for information. The requirements of subdivisions (a)(1) and (2) shall also apply to the benefit of anyone who, in a capacity other than that of a fiduciary, as defined by § 35-15-103, holds a power of appointment. The trustee of an irrevocable or non-grantor trust within sixty (60) days after the acceptance and funding of a trust, excluding nominal funding for the trust to have corpus or the depositing of insurance policies on the life of a living person, shall notify each current income beneficiary, each vested ultimate beneficiary of a remainder interest and anyone who, in a capacity other than that of a fiduciary, as defined by § 35-15-103, holds a power of appointment, that the trust has been established. The required notice shall: Be sent by first class mail or personal delivery; and Consist of either a complete copy of the document establishing the trust together with the trustee's name, address and telephone number or an abstract of the trust, whichever the trustee, in the trustee's absolute discretion, may choose. The abstract shall contain: The name, address and telephone number of each trustee; and If for a current income beneficiary: The number of other current income beneficiaries; Whether distributions of income are required or discretionary; Whether distributions of principal are permitted and, if so, for what purpose or purposes; An estimate of the value of the trust at the date of the notice from which distributions may be made; and An estimate of the income that may be distributable to the beneficiary; and If for a remainder beneficiary: The number of other remainder beneficiaries; An estimate of the value of the trust at the date of the notice; and The conditions which must be met before the beneficiary's share is distributable. If for anyone who, in a capacity other than that of a fiduciary, as defined by § 35-15-103, holds a power of appointment, all of the information required by subdivisions (b)(2)(A)-(C) necessary or beneficial for that person to effectively determine whether or not to exercise that power of appointment. Upon the termination of an interest of any one (1) or more of the current income beneficiaries: The trustee shall similarly notify the income beneficiaries who are takers of the terminated interest of their interest by sending or delivering them the notice required in subsection (b); and If at that time the period described in subsection (b) has lapsed, the trustee shall similarly notify anyone who, in a capacity other than that of a fiduciary, as defined by § 35-15-103, holds a power of appointment by sending or delivering to such person the notice required in subsection (b). A beneficiary may waive the right to a trustee's report or other information otherwise required to be furnished under this section. A beneficiary, with respect to future reports and other information, may withdraw a waiver previously given. Anyone who, in a capacity other than that of a fiduciary, as defined by § 35-15-103, holds a power of appointment has the same power as provided a beneficiary in this subsection (d) to waive reports and other information and to withdraw a waiver previously given. Subsections (a) and (b) shall not apply to the extent that the terms of the trust provide otherwise or the settlor of the trust, or a trust protector or trust advisor under part 12 that holds the power to so direct, directs otherwise in a writing delivered to the trustee. Subdivision (a)(1) and subsection (b) do not apply to a trust created under a trust agreement that became irrevocable before July 1, 2004. Trust law in effect prior to July 1, 2004, regarding the subject matter of subdivision (a)(1) and subsection (b) shall continue to apply to those trusts. If the trustee of a trust is bound by any written confidentiality restrictions with respect to an asset of a trust, a trustee may require that any beneficiary who is eligible to receive information pursuant to this or any other section of this title about such asset shall agree in writing to be bound by the confidentiality restrictions that bind the trustee before receiving such information from the trustee. A trust advisor, trust protector, or other fiduciary designated by the terms of the trust shall keep each excluded fiduciary designated by the terms of the trust reasonably informed about: The administration of the trust with respect to any specific duty or function being performed by the trust advisor, trust protector, or other fiduciary to the extent that the duty or function would normally be performed by the excluded fiduciary or to the extent that providing such information to the excluded fiduciary is reasonably necessary for the excluded fiduciary to perform its duties; and Any other material information that the excluded fiduciary would be required to disclose to the specified beneficiaries under subsection (a) regardless of whether the terms of the trust relieve the excluded fiduciary from providing such information to qualified beneficiaries. Neither the performance nor the failure to perform of a trust advisor, trust protector, or other fiduciary designated by the terms of the trust as provided in this subsection (h) shall affect the limitation on the liability of any excluded fiduciary provided by part 12 of this chapter. Acts 2004, ch. 537, § 71; 2007, ch. 24, §§ 28-30; 2010, ch. 725, § 9; 2013, ch. 390, §§ 32-35; 2019, ch. 197, § 6. Compiler's Notes. Acts 2013, ch. 390, § 55 provided that: (b) Except as otherwise provided in the act, on July 1, 2013: The act applies to all trusts created before, on, or after July 1, 2013; The act applies to all judicial proceedings concerning trusts commenced on or after July 1, 2013; The act applies to judicial proceedings concerning trusts commenced before July 1, 2013, unless the court finds that application of a particular provision of the act would substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties, in which case the particular provision of the act does not apply and the superseded law applies; Any rule of construction or presumption provided in the act applies to trust instruments executed before July 1, 2013, unless there is a clear and express indication of a contrary intent in the terms of the trust; and An act done before July 1, 2013, is not affected by the act. Amendments. The 2019 amendment added the last sentence in (a)(1). Effective Dates. Acts 2019, ch. 197, § 8. April 25, 2019. Cross-References. Confidentiality of public records, § 10-7-504 . Law Reviews. Agents in Secrecy: The Use of Information Surrogates in Trust Administration (Lauren Z. Curry), 64 Vand. L. Rev. 925 (2011). Tennessee Uniform Trust Code: New Formulation for a Trusty Tool (Marshall H. Peterson), 41 No. 1 Tenn. B.J. 24 (2005). 1. No Breach. 2. Compliance. Trustee's decision relating to a farm lease did not violate three statutory duties within the Uniform Trust Code because it exercised reasonable care, skill, and caution in its decision regarding the farm lease, and it kept a son reasonably informed about the administration of the trust and the farm lease. The son failed to demonstrate that the trustee administered the trust in a manner that was adverse to his beneficial interest as that interest was defined under the terms of the trust. Glass v. Suntrust Bank, 523 S.W.3d 61, 2016 Tenn. App. LEXIS 305 (Tenn. Ct. App. May 4, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 710 (Tenn. Sept. 26, 2016). In determining whether a trustee has met this section's reporting requirement, the key factor is whether the report provides the beneficiaries with the information necessary to protect their interests. Meyers v. First Tenn. Bank, N.A., 503 S.W.3d 365, 2016 Tenn. App. LEXIS 371 (Tenn. Ct. App. May 27, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 694 (Tenn. Sept. 22, 2016). Section Comment. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-813 . The provisions of this section in some ways diverge significantly from the Uniform Trust Code and the restate-ments. To the extent this section is in conflict with the Uniform Trust Code, any restatement or any other foreign law, such foreign law is not precedential or controlling and is rejected by the Tennessee Uniform Trust Code. The duty to keep appropriate beneficiaries reasonably informed of the administration of the trust is a fundamental duty of a trustee. The term “reasonable” is used several times in this section. This term connotes a sensible and not excessive amount of information. For the common law duty to keep the beneficiaries informed, see Restatement (Second) of Trusts Section 173 (1959). The provisions of this section may diverge from such restatement’s view of the common law, and to the extent such restatement is in conflict with this section, such restatement’s view is rejected. In the interest of certainty, subdivision (a)(1) diverges from the Uniform Trust Code and makes the duty to keep the beneficiaries informed more precise by limiting it to only those who are current mandatory or permissible distributees of trust income or principal, or both Subdivision (a)(2) provides that a trustee also has a duty to respond to a beneficiary’s request for information, unless such is unreasonable under the circumstances. However, again in the interest of certainty, subdivision (a)(2) diverges from the Uniform Trust Code and makes such duty to respond to a beneficiary’s request for information more precise by limiting such duty to only qualified beneficiaries s such are defined in T.C.A. 35-15-103. The result of this limitation is that the information need not be furnished to beneficiaries with remote remainder interests. No limitation in subdivisions (a)(1) nor (a)(2) affects the rights of the any current beneficiary who is designated as one or more primary beneficiaries, explicitly or implicitly, by the trust instrument. Nevertheless, unlike the Uniform Trust Code, subdivision (a)(2) requires that a qualified beneficiary reimburse the trustee for any reasonable expenses incurred in responding to requests for information. In determining if a beneficiary's request for trust information is reasonable, the trustee may consider any of the fol-lowing factors in determining whether a response is necessary and the extent of the information to be furnished: provisions of the trust document or other settlor written instructions concerning the providing of information; the relationship between the beneficiary requesting information and the other beneficiaries; the nature of the information requested; the frequency with which the beneficiary has or is requesting information; whether providing any of the requested information would violate any privacy rights of other beneficiaries; whether the requesting beneficiary is receiving statements on the trust account; the likelihood that the requesting beneficiary will eventually receive an interest in the trust; the cost of providing the requested information and whether the requesting beneficiary is willing to pay the cost. The trustee may require a prepayment of a fixed cost as a prerequisite to beginning to accumulate the information the availability of the information requested; and any other factors the trustee deems appropriate. The trustee is under a duty to communicate to a qualified beneficiary information about the administration of the trust that is reasonably necessary to enable the beneficiary to enforce the beneficiary's rights and to prevent or redress a breach of trust. See Restatement (Second) of Trusts § 173 cmt. c (1959). Ordinarily, the trustee is not under a duty to furnish information to a beneficiary in the absence of a specific request for the information. See Restatement (Second) of Trusts § 173 cmt. d (1959). However, special circumstances may require that the trustee provide additional information. For example, if the trustee is dealing with the beneficiary on the trustee's own account, the trustee must communicate material facts relating to the transaction that the trustee knows or should know. See Restatement (Second) of Trusts § 173 cmt. d (1959). Furthermore, to enable the beneficiaries to take action to protect their interests, the trustee may be required to provide advance notice of transactions involving real estate, closely-held business interests, and other assets that are difficult to value or to replace. See In re Green Charitable Trust, 431 N.W. 2d 492 (Mich. Ct. App. 1988); Al-lard v. Pacific National Bank, 663 P.2d 104 (Wash. 1983). The trustee is justified in not providing such advance disclosure if disclosure is forbidden by other law, as under federal securities laws, or if disclosure would be seriously detrimental to the interests of the beneficiaries, for example, when disclosure would cause the loss of the only serious buyer. Notwithstanding the preceding portions of this paragraph to the extent any of it is in conflict with the Tennessee trust statutes, the latter are controlling. Subdivision (a)(3) causes the requirements of subdivisions (a)(1) and (a)(2) to also apply to the benefit of anyone who, in a capacity other than that of a fiduciary holds a power of appointment; with all relevant terms having the meanings as defined in T.C.A. § 35-15-103 . Holders of powers of appointment are not beneficiaries (and therefore, cannot be qualified beneficiaries) as such terms are defined in T.C.A. § 35-15-103 . Nevertheless, in order to determine whether such power holder should not exercise or should exercise such power, as well as the manner in which any such exercise should be made, such power holder needs to be kept reasonably informed of the administration of a trust. Because other sections of the Tennessee Uniform Trust Code assure that all fiduciaries are kept appropriately informed of the administration of a trust, there is no need to impose the requirements of subdivisions (a)(1) and (a)(2) relative to a holder of a power of appointment who is also a fiduciary and subdivision (a)(3) does not do so. Subsection (b) varies significantly from the Uniform Trust Code. Prior to the effective date of the Tennessee Uniform Trust Code on July 1, 2004, Tennessee already had in effect a procedure for providing notification of the creation of a trust and similar matters. That provision can be found at repealed T.C.A. § 35-50-119 . The portions of the Tennessee Uniform Trust Code relative to notification of creation of a trust and similar matters is based on that prior language and not on the Uniform Trust Code. As with such procedure that existed prior to the effective date of the Tennessee Uniform Trust Code, the requirement of providing such notification under subsection (b) can in certain cases be waived, as can the requirements of subsection (a). Thus unlike the Uniform Trust Code, the restatements and other foreign law of many jurisdictions, the Tennessee Uniform Trust Code explicitly allows so-called “quiet” or “silent” trusts. Absent such a waiver, subsection (b) requires that, in most cases, a trustee of an irrevocable trust that is not a grantor trust under subpart E, part 1, subchapter J, of Chapter 1 of the Internal Revenue Code (i.e., the “grantor trust rules”) inform the current income and vested ultimate beneficiaries, as well as anyone who, in a capacity other than that of a fiduciary, holds a power of appointment (with all such terms having the meanings as defined in T.C.A. § 35-15-103 ) within sixty (60) days of the trust’s existence. Such notice must include the trustee’s name, address and telephone number and must contain, in the trustee’s discretion, either a complete copy of the document establishing the trust or an abstract containing the information provided in subdivision (b)(2). Subsection (c) requires that the same information required in subsection (b) be provided to the income beneficiaries who are takers of a terminated interest upon the termination of such interest of any one or more current income benefi-ciaries. At such time certain holders of power of appointment are likewise required to be given the information required by subsection (b). Notwithstanding the provisions of subsections (a) – (c), the Tennessee Uniform Trust Code does not statutorily take a position on the extent to which a trustee may claim attorney-client privilege against a beneficiary or holder of a power of appointment who has the right under such subsections (a) – (c) seeking discovery of attorney-client communications between the trustee and the trustee's attorney. Nationally, courts are split on this issue and the drafters of the Tennessee Uniform Trust Code can find no Tennessee case on point. Nevertheless, for the following reasons it is believed that overall Tennessee law gravitates toward the view that the fiduciary and not the beneficiary is the client: Such is the traditional majority rule in the United States. See Wells Fargo Bank v. Superior Court (Boltwood), 990 P.2d 591 (Cal. 2000); Huie v. De Shazo, 922 S.W.2d 920 (Tex. 1996); Spinner v. Nutt, 631 N.E.2d 542 (Mass. 1994); Paskoski v. Johnson, 626 So. 2d 338 (Fla. Ct. App. 4th 1993); First Union Nat’l Bank v. Turney, 824 So. 2d 172 (Fla. Dist. Ct. App. 2001); Murphy v. Gorman, 271 F.R.D. 296 (D.N.M. 2010). While a more recent Supreme Court case includes dicta that there is an exception regarding attorney-client privilege in fiduciary cases, see United States v. Jicarilla Apache Nation, 131 S. Ct. 2313 (2011); such dicta has been reviewed by the Illinois Court of Appeals, which rejected it and found no such exception.. Garvy v. Seyfarth Shaw LLP, 966 N.E.2d 523 (Ill. App. Ct. 1st Dist. 2012), Petition for appeal denied, Garvy v. Seyfarth Shaw LLP, 979 N.E.2d 876 (Ill. 2012). The Tennessee Code contains multiple statutes providing for attorney-client privilege. See T.C.A. §§ 23-3-105 , 23-3-106 , and 67-1-1710 . Moreover, an attorney who violates either of the first two such sections is severely penalized, being guilty of a Class C misdemeanor, and upon conviction stricken from the rolls as a practicing attorney. Finally, the attorney-client privilege is one of the privileges recognized under Tenn. R. Evid. 501 (2013). In response to the above indicated split in opinion, several states have recently explicitly provided by rule or statute that no exception to attorney-client privilege exists in fiduciary cases. See New York Civil Practice: CPLR § 4503; Fl. Stat. 733.212 and 736.0813. The overriding emphasis of the Tennessee Uniform Trust Code is on settlor’s intent and of freedom of disposition. To hold that a beneficiary and not the fiduciary was the “real” client would conflict with the trustee's fiduciary duty to implement the intentions of the settlor, which are sometimes in tension with the wishes of one or more beneficiaries. In order for a trustee to carry out this duty it is sometimes necessary or beneficial for the trustee to seek legal counsel and not being able to assert this privilege might inhibit the trustee from doing so. After all as stated by the Supreme Court of the United States, “[The purpose of the attorney-client privilege] is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” and “The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.” Upjohn Co. v. United States, 449 U.S. 383, 389 and 386 (1981). Express donative trusts, such as those primarily provided for under the Tennessee Uniform Trust Code differ from ERISA trusts. Such ERISA trusts apply a theory that the beneficiary is the actual client. See, e.g., United States v. Mett, 178 F.3d 1058, 1062-64 (9th Cir. 1999). However, a pension trust differs from express private trusts because the beneficiaries are the settlors of their own trust, such trust being funded with the beneficiaries’ earnings. Accordingly, in ERISA attorney-client cases “[t]here are no competing interests such as other stockholders or the intentions of the Settlor.” Gibbs & Hanson, 21 ACTEC Notes at 238. The Tennessee Uniform Trust Code employs the term “report” instead of “accounting” in order to negate any inference that the report must be prepared in any particular format or with a high degree of formality. The reporting requirement might even be satisfied by providing the beneficiaries with copies of the trust's income tax returns and monthly brokerage account statements if the information on those returns and statements is complete and sufficiently clear. The key factor is not the format chosen but whether the report provides the beneficiaries with the information necessary to protect their interests. For model account forms, together with practical advice on how to prepare reports, see Robert Whitman, Fiduciary Accounting Guide (2d ed. 1998). Subsection (d) allows trustee reports and other required information to be waived by a beneficiary as well as a holder of a power of appointment entitled to receive same. Such beneficiary or holder of a power of appointment may also withdraw a consent. However, a waiver of a trustee's report or other information does not relieve the trustee from accountability and potential liability for matters that the report or other information would have disclosed. Subsection (e) provides the mechanism for “quiet” or “silent” trusts. Subsection (a) and (b) do not apply to the ex-tent that the terms of the trust provide otherwise, nor to the extent that the settlor or a trust protector or trust advisor holding the power to so direct, directs otherwise. Additionally under T.C.A. § 35-15-303 a settlor may designate in writing a representative to receive various notices and represent and bind such beneficiaries. The designation of a representative by a settlor may occur subsequent to the execution of the trust instrument, however, it must meet the notice requirements of this section. If the settlor designates a representative to receive notices, the designation should specify that the representative is to receive any reports from the trustee on behalf of the individual beneficiary. Although sub-section (e) only explicitly states that it should apply to subsections (a) and (b), there is no logical reason it should not apply to subsection (c) as well. Subsection (c) only effectively provides such beneficiaries who were not either current income beneficiaries or vested remainder beneficiaries at the time the trust was established with any additional notice. It is only logical that if a settlor, trust advisor or trust protector can direct the withholding of notice to beneficiaries otherwise entitled thereto upon the creation of the trust under subsection (b), such persons should likewise be able to direct such withholding to those who only become current beneficiaries thereafter. Subsection (f) provides the transition rules for the notice and information requirements upon the effective date of the Tennessee Uniform Trust Code. Subsection (g) provides that if a trustee is required to keep certain information regarding trust assets confidential the trustee can be assured that he/she can carry out their duty to inform and report to beneficiaries without fear of indirectly breaching the trustee's duty of confidentiality. This is often (but not exclusively) of special importance when a closely held asset is held by a trust. In order to allow directed trusts to operate efficiently, subsection (h) requires that trust advisors, trust protectors and other fiduciaries keep each excluded fiduciary, all as such are defined in T.C.A. § 35-15-103 , reasonably informed about the information reasonably necessary for such fiduciaries to carry out their respective duties. If a right is acquired, extinguished, or barred upon the expiration of a prescribed period that has commenced to run under any other statute before July 1, 2013, that statute continues to apply to the right even if it has been repealed or superseded.