Probate & Trust Law Section Conference Manual ... - Minnesota CLE

specific information like their financial needs and current circumstances relevant to their
status as a beneficiary of the trust. The trustee should have an understanding of the
family history and the familial relationships among the beneficiaries. Depending upon
the overall purpose and terms of the trust, other specific information may be required
(i.e., proof of other income sources, tax returns, or even results of chemical dependency
tests!)
There is no greater potential source of disputes, not only between trustees and
beneficiaries, but among beneficiaries themselves, than the matter of discretionary
distributions. These disputes frequently involve issues surrounding the amounts and
frequency of distributions. However, they may also involve whether the distributions
that are in fact made are appropriate to the beneficiary’s needs. Trusts drafted today
often include “spray” provisions which allow the trustee greater latitude as to the timing
and amount of distributions among several beneficiaries. Instead of the older
arguments of income v. capital appreciation, which have largely been addressed
through the application of modern portfolio theory and the use of the Uniform Principal
and Income Act, the claims of today’s beneficiaries are more nebulous and in many
cases more difficult to quantify.
In addition to the communication issues referenced above and the need for the trustee
to obtain as much information about the beneficiaries as possible, the trustee should
also employ the following “best practices”:
--complete a comprehensive review of the trust documents to fully comprehend the
duties and scope of discretion given to the trustee;
--document fiduciary decisions, keeping records of the analysis, supporting
documentation, minutes of committee meetings, and other materials that may be
appropriate;
--stay attentive to the needs of the beneficiaries, conducting periodic meetings to review
investments and discuss upcoming distributions; and
--don’t assume the trust can operate on “autopilot.” Trustees can be held liable for their
inaction, and no decision can be just as problematic as a bad decision.
--establish a set format for gathering financial and family information from the
beneficiaries. This format should be utilized to gather information necessary in the
evaluation of a distribution request. This procedure needs to be communicated to the
beneficiaries, along with advance notice that this data will be required before the trustee
can make a discretionary distribution.
--finally, the beneficiaries should be asked to periodically update their information,
including their short-term and long-term needs. This might be accomplished through
the use of written request forms for discretionary distributions.
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