What Are Trust Documents?
Trust documents are fundamental tools in estate planning. Grantors establish a trust to direct their executor to administer trust assets after death. The trust document names the trustee, identifies the beneficiaries, determines the division of trust assets among the beneficiaries, and sets restrictions on the distribution of trust assets. The trustees are typically named either in the trust document itself or in the decedent’s will as sub-trusts under the decedent’s trust.
The trustee is the individual designated to hold and manage the assets set forth in the trust document. The trustee is required by law to manage the trust property in accordance with the terms set forth in the trust document .
The beneficiaries are the individuals or entities that receive distributions from the trust. The beneficiaries can be required to wait until certain conditions are met to receive distributions from the trust or they may be entitled to immediate distribution of the principal and/or income generated from the principal.
The purpose of the trust document is to ensure that the grantor’s estate is administered in accordance with the grantor’s wishes. The goal of an estate plan is to maximize privacy and avoid, to the extent possible, probate in the state where the decedent was domiciled. Properly drafted trust documents can avoid probate for assets in the trust.
Public vs. Private Document
When it comes to the privacy of documents prepared in estate planning, there is an important distinction between public records and private documents. A public record is any document or piece of information that is not confidential and that has been filed with a government agency, like a court or a state office. Such records are generally available to the public and can be viewed simply by requesting them from the appropriate government office. A private document is any document that does not fit that description, and where access to that document (without the permission of whoever is in legal control of it) is considered a breach of privacy.
Most of the time, estate planning documents (like wills and trusts) are private documents instead of public records. Because wills are commonly required to pass on property to relatives, the privacy of a will must be balanced with the interests of the appropriate government agency to see that such property is transferred as intended. That is why it is true that the text of a will usually becomes a public record after the death of the person who signed it (called the testator, latin for "maker"), but only after the will has been offered for probate. As long as a will is unprobated, it remains a private document, and anyone trying to see the document would be legally prohibited from viewing it.
Are Trust Documents Public Record?
Unlike other documents such as wills or probate filings, the administration of a trust is not a public matter. Trust documents are created and exist privately, and the terms of a trust can remain confidential while the creator of the trust is still living. In many cases, disabilities, such as a debilitating disease like Alzheimer’s, can create a situation far worse than simply having someone else complete the administration of the trust. In case of a conflict, the trust administration may turn adversarial.
While a trust may contain other privacy restrictions, upon the death of the settlor, a revision of the trust may be required to change administration provisions so that the trust is seamlessly continued or wrapped up. In this situation, a court may need to be involved. A court may also need to be involved in any matter related to trust administration for which the trustees, former trustees, or beneficiaries cannot agree. Since a trust is not administered under court supervision and is considered private, the trust administrator does not have to make trust documents publicly available. If a trust administration is free from court supervision, no court record is made available to the public, meaning no private personal information from the trust is made part of a public record. This is contrasted with a court record, such as a will, in which the record is open to review by the general public.
Factors Influencing Trust Document Privacy
Jurisdiction, type of trust, and specific legal requirements for disclosure all can play a major role in determining the extent to which a trust document will remain private. In most cases, the privacy of a trust document will be determined by the following factors:
For example, in Virginia, there is no requirement to offer a trust instrument for public inspection. In contrast, North Carolina trust law requires that certain documents be offered for public inspection upon the appointment of a successor or substitute trustee.
Under North Carolina’s Uniform Trust Code, North Carolina General Statute ยง 36C-10-103, the trust beneficiaries are entitled, upon request, to a copy of the trust instrument, and a review of the trustee’s books and records, including the trustee’s accounts, statements, and reports, upon reasonable notice. While these disclosures would essentially make the trust sensitive information a public document, the statute does not require that the disclosure of any such information be filed with the Clerk of Court.
Several other states require notice of the trustee’s initial acceptance, or its plan to resign, to be provided to the beneficiaries. Because such notice triggers the right to request a copy of the trust instrument, the notice to the trust beneficiaries essentially offers the trust instrument for public inspection.
While a settlor can take steps to preserve privacy and confidentiality under applicable law, it is often difficult to re-introduce privacy once required disclosures have been made. In other words, actions may be taken after the death of the settlor to restore privacy to certain documents; however, the disclosure of a trust instrument to a beneficiary who has under the laws of a given jurisdiction a right to a copy of the same cannot be "undone." Once disclosed and offered for public inspection, a trust instrument is in the public domain and becomes a part of the public record (in jurisdictions where such disclosure is required).
Jurisdictions that already require disclosure of a trust document upon the decedent’s death, generally also require the delivery of notice to let the beneficiaries know of this requirement. In addition, many jurisdictions allow the trust beneficiaries to increase their level of knowledge regarding the administration of the trust by requesting certain reports, including accountings. Because the statutes enabling such requests often contain time periods within which the beneficiary must make such requests, a settlor may be able to statutorily extend the period during which a beneficiary can request "trust information" from the trustee.
These issues are particularly important for those considered "necessary parties," such as the settlor’s spouse, to a trust administration, whether an existing trust, or one in connection with a Will or Revocable Trust. Because both the spouse and the trustee have a duty to disclose information that is "material" to the administration of the trust, this disclosure may also include matter that would otherwise be private and confidential.
Since privacy and confidentiality are largely dependent upon the laws of the jurisdiction that governs the trust, it is likely that there will be a difference in opinions by jurisdictions concerning the amount and type of disclosures required of the trustee or the executor of a decedent’s estate. Although privacy and confidentiality are important considerations for those concerned about their life savings ultimately going to spouses and children, the right to receive information is also very important for beneficiaries.
Advantages of Keeping Trust Documents Private
Maintaining the privacy of trust documents can be a practical consideration in estate planning for two main reasons: protecting beneficiaries and safeguarding family financial information.
Protecting Beneficiaries. In most cases, a trust is used to hold assets for the benefit of one or more individuals. While it is typically desirable to keep a trust document private, this is especially true when one of the beneficiaries of a trust is a minor child of the deceased parent. In these situations, parents are usually very protective of their children, and they do not want their children to see in writing any negative emotional statements about them. Children are often very resilient, but reading hurtful statements written by a parent can have damage a child’s emotional development. For example, if mom names her favorite child to receive the parent’s assets at his or her death, the other children of the parent can be devastated by that "favoritism." By keeping the document private, the parent removes the potential for hurt feelings and the psychological damage that can result from it. Parents can have emotional pitfalls as easily as their children .
Safeguarding Family Financial Information. No trust document and its provisions should be made public knowledge unless and until one of its provisions is actually used (such as making a distribution to a beneficiary) or a court order requiring disclosure of the document is obtained. The assets in the trust are available for distribution to the beneficiaries of the trust as approved by the Trustee. When a potential beneficiary learns that she is a beneficiary of the trust, the potential beneficiary will sometimes develop an attitude of entitlement. Why work to earn money to buy something when I can simply go to mom’s trust and ask for what I want and need. There are a few beneficiaries who do not act this way, but the majority of them will act this way. Thus, if a trust instrument is kept private, the beneficiaries cannot demand a piece of the pie that they are entitled to by contract (the trust document provisions). By keeping the trust agreement private, the beneficiaries may not know their entitlement under the terms of the trust instrument, so they will not feel entitled to anything other than what the Trustee decides to give them.
How to Make Trust Document Private
There are steps you can take to keep your trust documents private. Common sense goes a long way, and careful planning can often thwart attempts to unveil the terms of a trust. Here are some steps you can take to keep your trust’s terms private, within reason.
- Have a full estate plan in place. If the only documents a decedent left behind were a trust and a pour-over will that simply transferred assets into the trust, the trust distributions can remain private. A pour-over will is the document that "pours" all assets into the named trust upon a person’s death.
- Name a corporate trustee. While individuals can act as trustees, naming a corporate trustee (such as a bank) may dissuade beneficiaries from ruffling through the terms of the trust due to the decision of the trustee to keep those terms private.
- Hire a professional estate planning attorney. Hiring an attorney who specializes in estate planning creates an attorney-client relationship, which requires the attorney not to disclose any details of the trust unless certain exceptions apply (such as the crime-fraud exception, discussed above). An estate planning attorney can also advise on the most important terms to include in a trust that will protect the settlor’s wishes while maintaining a degree of privacy.
- Keep your estate plan updated. If your trust has been in existence for a long time, your terms may be outdated, or your living situation may have changed. Keeping your plan current can save your trust money by avoiding litigation, and keep those terms private.
- Limit who is named as trustee. Naming a very small number of trustees may help keep terms private. Once a trust comes into existence, trustees are typically able to view its terms. For example, a trustee has a fiduciary duty to account for all distributions from the trust for the lifetime of the trust using clear and transparent reporting. Other co-trustees may challenge a co-trustee on a distribution, further causing conflict.
- Plan for contingencies. If the first trustee or beneficiary of a trust predeceases the settlor, consider an automatic appointment of another trustee who is not a potential beneficiary. This way, disputing parties can have an objective party to discuss terms with.
- Be aware of your state laws. Each state has its own laws concerning trusts, so be sure to determine whether the terms of your plan will remain private under the law of your state.
While there is no surefire way to prevent the terms of a trust from being revealed, these steps can assist you with more private results.
What Happens If the Trust Documents Become Public
If trust documents are inadvertently made public, the first step is to seek the counsel of a qualified estate planning lawyer. They can review the specific facts and provide guidance on potential remedies. One potential remedy might be to revise the trust document and re-execute it in front of notaries or witnesses .
Remedies to ensure privacy or to strengthen future trust documents include the incorporation of additional language in the trust document providing for witnesses or notaries. In addition, some articles recommend that a full and complete copy of the trust is not filed with the court, but rather a summary document in the hopes that the summary document will be sufficient for the court and ensure privacy.