Agents in Secrecy: The Use of Information Surrogates in Trust Administration

I. INTRODUCTION 926 II. DEVELOPMENT OF THE PRESENT CONFLICT 929 A. The Traditional Common Law Principle 929 B. The Development of the Uniform Trust Code 931 C. The Chosen Disclosure Regimes in UTC States ...... 935 1. Deviations from the General Duty to Inform and Report Under UTC Section 813(a) 935 2. Deviations from the Specific Duties Under UTC Section 813(b) 936 3. Deviations from the Mandatory Aspects of the Duty to Inform Under UTC Subsections 105(b)(8), (9) 937 III. THE POLICY DEBATE 939 A. Mandatory Disclosure 940 B. Discretionary Disclosure 944 IV. INFORMATION SURROGATES: A COMPROMISE 947 A. The Surrogate Approach 948 B. Giving Shape to the Surrogate Form 951 1. The Specific Responsibilities of an Information Surrogate 951 2. Statute of Limitations for Actions Against the Trustee and the Standing of the Surrogate to Bring Actions on Behalf of the Beneficiaries 955 3. Potential Actions by the Beneficiaries Against the Surrogate 956 V. CONCLUSION 959 I. INTRODUCTION Trusting another to look after one's best interest when money is at stake is difficult in many different situations. This is true in the area of administration as well. As with most areas of law and regulation, law addresses this concern primarily through the requirement of information disclosure. Information disclosure to beneficiaries has become a heated issue among scholars and practitioners. Interestingly, as fundamental as disclosure may be in administration, the duty to disclose is not precisely defined at common law and is far from uniform. This creates a profusion of problems for trustees who operate in multiple jurisdictions,1 or who are attempting to fulfill fiduciary or administrative duties that are not clearly defined. States recently have mentioned this desirability for clarity and uniformity when modifying their own laws. Additionally, litigation against trustees is on the rise.2 While there are many reasons for this recent uptick in litigation,3 the chance that a trustee will violate her obligations as a fiduciary, and therefore be subject to litigation, increases when the trustee fails to fully understand her duties.4 This is especially true in an area of law as complex and varied as a trustee's duty to disclose information to its beneficiaries. Underlying the difficulties in a trustee's attempt to fulfill this duty are two fundamental and seemingly opposing principles of law. On the one hand, trust law typically accord[s] a settlor nearly unfettered latitude to determine which terms and restrictions would benefit her chosen beneficiaries . . . .5 This principle advocates for a system of default rules that would allow a settlor to prohibit information disclosure and protect the funds against attack by immature or rival beneficiaries. On the other hand, [i]t is an accepted principle of law that a private exists to benefit the beneficiaries thereof.6 Once a settlor has placed assets into a trust, she has relinquished control over these assets. This principle supports mandating information disclosure to beneficiaries, the holders of equitable title in the assets. Traditionally, as a result of these two principles, settlors could construct the terms of their trusts with great discretion, but were required under common law to provide at a minimum information reasonably related to the beneficiary's interest in enforcing her rights under the trust. …