Statutory Details Concerning Trusts and Trustees
Who may make a trust?
Any person who has capacity to make a Will may create, amend, revoke, direct a trustee, or add property to a revocable trust (RCW 11.103.020).
Trusts are irrevocable, unless the trust instrument itself states the trust is revocable (RCW 11.103.030(1)).
If a trust involves community property, the consent of both partners is required. Transfer of any assets to or from a trust does not affect their status as community or separate property (RCW 11.103.030(2)).
A trustor may amend or revoke a revocable trust by compliance with the terms of revocation or amendment in the trust, or, if the trust does not require a particular method, then by written instrument (RCW 11.103.030(3).
What is a trust?
A trust is an extremely flexible legal document that dedicates property given to one person (the trustee) to be utilized for the benefit of another person (beneficiary).
- The Washington Trust Act is RCW 11.98.
- A person requires testamentary capacity to create, amend, revoke, or add property to a revocable trust (RCW 11.103.020). A revocable trust must expressly state that it is revocable in order to be so (RCW 11.103.030).
- Courts intervene in trust matters using their powers in equity. Washington Superior Courts have plenary powers with respect to trust matters (RCW 11.96A.020, 11.96A.040, 11.96A.60).
- Trusts may be created by Will or other instrument effective-upon-death, by a declaration of trust by the owner of property that the property is intended as trust property, or by use of a power of appointment regarding a trustee (RCW 11.98.008).
- A trust is created only if the person who creates the trust is: 1) competent, 2) intends to create a trust, 3) the trust has a definite beneficiary (that is, the beneficiary are a person or class of persons, or is a charitable trust, a trust for a non-charitable purpose (RCW 11.98.015), or an animal trust), 4) the trust has duties for the trustee to perform, and 5) the sole trustee and sole beneficiary are not the same person (RCW 11.98.011).
- Trusts are valid only if their purpose is lawful, not contrary to public policy, and the trust’s purposes are possible to achieve (RCW 11.98.013).
- A trust may be created by oral means alone, but proving such a trust requires significantly better evidence than if the trust is written (RCW 11.98.014).
- Rule Against Perpetuities. If any provision of a trust disposes of property more than 150 years in the future after the trust becomes effective, then the entire trust is invalid (RCW 11.98.130). A trust may, however, give assets to a subsequent trust, and assets may then, in fact, be distributed more than 150 after creation of the initial trust (RCW 11.98.140). If, at the end of 150 years, trust assets remain, the superior court shall distribute those assets in a manner consistent with the intentions of the creator of the trust (RCW 11.98.150). An irrevocable trust begins to exist when executed. A revocable trust or testamentary trust begins to exist upon the trustor’s death (RCW 11.98.160).
- Revising. Trusts. Where a trust fails to conform to the intention of the trustor, the court, upon clear, cogent, and convincing evidence that the trust was affected by a mistake of fact or law, may reform the language of the trust (RCW 11.96A.125). If a charitable trust’s purposes become illegal, impractical, impossible, or wasteful, then a court may revise the trust to effect the intent of the trustor. The affected property does not revert to other legatees or heirs. No challenge may be brought by non-charitable persons to a charitable distribution twenty-one years and later after the charitable disposition became irrevocable (RCW 11.96A.127).
What rules govern a trustee?
A trustee is a person that holds legal title to property from another person (the settlor) for the sole benefit of a third person or persons (beneficiary); a trustee owes fiduciary duties to the beneficiaries of the trust.
- During the life of a revocable trust’s trustor, a trustee owes duties only to the trustor, not to beneficiaries (RCW 11.103.040).
- The person who creates a trust may relieve his trustee from any or all of the duties, powers, restrictions, and liabilities imposed by Washington statutes pertaining to trustees, except that no trustee may be relieved of his duty of good faith and honest judgment (RCW 11.97.010).
- The rules for interpreting a Will and the disposition of estate property apply to the interpretation of trusts and the disposition of trust property (RCW 11.97.020).
- One of two or more co-trustees may delegate his or her powers to another co-trustee, if the delegating co-trustee does so in writing (RCW 11.98.016(3)).
- Declination. A nominated trustee may accept or decline to serve as trustee, provided they do so promptly and have not acted substantially as trustee (RCW 11.98.017).
- Resignation. A trustee may resign by written document (RCW 11.98.029), and be replaced by agreement of the parties with an interest in the trust assets (nonjudicial succession) (RCW 11.98.039(2)) or by a court of competent jurisdiction (RCW 11.98.039(4)). Resignation of a trustee is effective upon agreement of the notice parties or after thirty days, whichever is sooner. (11.98.041).
- A fiduciary (trustee or personal representative) may accept at face value the representations of his predecessor, except when the successor has actual knowledge of the predecessor’s breach of fiduciary duty (RCW 11.98.039(5)).
- Successor trustees have the powers of the original trustee (RCW 11.98.060).
- Corporations may be trustees, and any entity’s successor may continue service as trustee without further court order (RCW 11.98.065).
- A trustee has powers specified by statute (RCW 11.98.070).
- Informing Beneficiaries. A trustee must keep all beneficiaries reasonably informed about the administration of the trust and of material facts necessary for the beneficiaries to protect their interests. A trustee must promptly respond to reasonable requests for information related to trust administration by a beneficiary, including providing a copy of the entire trust instrument to the beneficiary. Failure to honor these duties of providing information may result in the trustee being assessed with the beneficiary’s attorneys fees in compelling the trustee to comply (RCW 11.98.072(1)).
- Notice upon Inception. With limited exceptions, a newly-appointed trustee must notify beneficiaries of becoming trustee within sixty days of accepting that role. The details of what notice must be given are contained in the statute. The creator of a trust may waive the trustee’s duty of notice (RCW 11.98.072)
- Certifications. When a non-beneficiary requests information about the trust, a trustee may provide that person with a certification of trust which contains pertinent information for third parties, but does not disclose the beneficiaries or terms of financial benefit under the trust. Persons who receive such trust certification are entitled to rely upon the representations of that certification (RCW 11.98.075).
- Loyalty. A trustee’s must administer his trust solely to promote the interests of the trust’s beneficiaries. Any act taken by a trustee with trust property that benefits the trustee can be voided by a beneficiary, unless the trust or a court or a beneficiary agreement authorized the act, or the beneficiary waited more than three years after receiving from the trustee an adequate report of estate affairs to commence the action against the trustee (RCW 11.96A.070), or the beneficiary consented or acquiesced in the trustee’s action, or the trustee’s act commenced before he became or contemplated becoming trustee (RCW 11.98.078). The trustee is also prohibited, by a rebuttable presumption, from entering sweetheart deals pertaining to trust assets with certain persons: his spouse, relatives and in-laws, his attorney or agent, business associates, or corporations in which the trustee owns a significant interest. Certain self-benefitting acts of a trustee cannot, if fair to the beneficiaries, be voided by those beneficiaries, and the court may appoint a special fiduciary to insure fairness to the beneficiaries (RCW 11.98.078(7)). A trustee must, if there are more than one beneficiary, act impartially as between them, after giving due regard to each beneficiary’s interests.
- Ignorance of Relevant Information. If a trustee, after exercising reasonable care to learn relevant facts that affect the trust administration, fails to learn of a relevant event, the trustee is not liable for his or her lack of knowledge of the event (RCW 11.98.100).
- Signatures. A trustee is not personally liable for injuries to others by trustee’s actions in the course of the trustee’s duties, provided that the trustee entered the contract or liability having signed “Trustee” or “as Trustee” after the trustee’s signature (RCW 11.98.110).
- Consolidation. Trustees can consolidate some trusts, provided doing so injures no beneficiary, upon sixty days notice to beneficiaries. If a beneficiary objects to a proposed consolidation, the trustee may not proceed with consolidation apart from further court order (RCW 11.98.080).
- A trust may receive proceeds of life insurance or retirement benefits (if claimed within twelve months) or other assets and administer them in accord with the trust’s provisions. Life insurance and retirement proceeds are not subject to the debts of the decedent’s estate to any greater extent than if they have been paid directly to the named beneficiary (RCW 11.98.170). This statute applies only to beneficiary designations made after January 1, 1985.
- A trustee who is also a trust beneficiary may not unequally benefit himself or herself as compared to other beneficiaries in any manner, except by action of a non-disqualified co-trustee, a court order, or agreement of all beneficiaries (RCW 11.98.200). If the trust provides absolute or sole power to the trustee, those provisions shall be ignored where a co-beneficiary is sole trustee (RCW 11.98.210).
How must a trustee administer trust assets?
- Managing Assets. A trustee’s investment of assets is governed by: 1) RCW 11.100, which chapter is called Investment of Trust Funds; 2) RCW 11.104A, which chapter is called the Washington Principal and Income Act of 2002; and 3) RCW 11.106, which is called the Trustees’ Accounting Act.
- Total Asset Management Approach. A trustee must consider the role of each asset in relation to all other trust assets, which is called a “total asset management approach.”
- Prudent Investor Rule. A trustee is required to exercise the judgment and care under the prevailing circumstances that a person of prudence, discretion, and intelligence would exercise in the management of his or her own affairs, when that prudent person believes that those assets are to be permanently retained. A trustee must employ that person’s specialized skills, if he or she has such. A trustee must consider the trust income and safety, the marketability of investments, general economic conditions, the term of investments, the duration of the trust, the trust’s need for liquidity, the beneficiaries’ needs, the earning capacity and other assets of beneficiaries, and the tax effect of each investment. RCW 11.100.020.
- A trustee may make “risky” investments with no more than ten percent of the fair market value of the trust assets (RCW 11.100.023).
- A trustee must invest solely in the beneficiaries’ interests, and where these may differ between beneficiaries, the trust must take into account their differing interests (RCW 11.100.045).
- Diversification. A trustee must diversify the trust assets unless the trust provides otherwise or circumstances dictate otherwise (RCW 11.100.047). A trustee may, however, hold assets received directly by the trust without diversifying, but where an asset is acquired for consideration, the duty to diversify pertains (RCW 11.100.060).
- A fiduciary is not responsible for financial losses to trust assets if the investment was permitted when the trustee received it or when the fiduciary invested with due care and prudence (RCW 11.100.060).
- A trustee may not invest in his own enterprises or purchase shares of enterprises in which the trustee has an interest, or those of affiliated persons (despite what the statute elsewhere says in RCW 11.98.070(12)). RCW 11.100.090.
- A trustee may, with trust assets, purchase life insurance on a beneficiary’s life or a person in whose life the beneficiary has an insurable interest (RCW 11.100.120).
- Persons, other than the trustee, who direct or control either the fiduciary or the trust’s investments becomes a fiduciary just as if that person were designated trustee (RCW 11.100.130).
- Significant Non-Routine Transactions. A trustee shall not undertake a “significant nonroutine transaction” without a compelling circumstance unless the trustee provides written notice to the trustor, beneficiaries, and the attorney general (for charitable trusts only) at least twenty days before undertaking the transaction. A “significant nonroutine transaction” involves agreements pertaining to assets valued at twenty-five percent or more of the estate assets with respect to: real estate transactions lasting ten years or longer, sale of tangible personal property, or stock sales that are not on the open market. Further any stock sale that changes the trust’s interest from controlling to less than controlling requires notice. A “compelling circumstance” is one that portends immediate and significant detriment to the trust. If a compelling circumstance exists, the trustee may give notice and act, without waiting the twenty day period. The requirements of this section may be waived by the trustor or beneficiaries (RCW 11.110.140).
- A trustee may deviate from the provisions of this statute pertaining to investments by court order (RCW 11.100.040).
- The surviving spouse of a disclaimer trust or credit shelter trust (for state or federal tax-savings) may require a trustee to make unproductive assets productive (RCW 11.100.025).
- Adjustments between Principal and Income. In some trusts, a beneficiary has a right to receive the income of the trust, while others have a right to receive the principal of the trust at a future date. Washington statutes specify accounting rules that determine what counts as income and what counts as principal, and, hence, how large a distribution an income beneficiary should receive and what a residuary beneficiary will receive. A trustee may adjust funds between principal and income when necessary within the limitations imposed by the prudent investor rule and the terms of the trust instrument. A trustee, when making such an adjustment between principal and income, must consider nine factors, which the statute specifies. A trustee may not make an adjustment between principal and interest under eight specific circumstances, which the statute specifies (an important limitation that no adjustment is permitted when the trustee is also a beneficiary). The power to adjust assets between principal and income may be released in whole or in part and for a limited period of time. Beneficiaries may ask the trustee to make adjustments between principal and income, but the trustee is not obligated to comply. RCW 11.104A.020. A court may overrule a trustee’s decisions as to transfers between principal and income only if the trustee has abused discretion. Where the trustee’s discretion has been abused, the court may restore the beneficiaries to the position they would have had before the abuse of discretion. The trustee is not personally liable for such abuses of discretion unless the court also determines that the trustee acted without good faith and honest judgment. A trustee may ask the court to rule on a proposed action before it is taken. All of a trustee’s attorney’s fees in such matters shall be paid by the trust, unless the trustee is determined to have acted without good faith and honest judgment. RCW 11.104A.030. Extensive accounting rules for complex trusts are contained at RCW 11.104A.040-11.104A.907.
What are fiduciary duties?
Fiduciary duties constrain the actions of a trustee to only those undertaken to help the beneficiaries in a manner consistent with the terms of the trust involved. Core fiduciary duties prevent trustees from dawdling (lack of diligence), self-dealing in trust assets (theft or sweetheart deals), acting in bad faith (lying or failing to disclose relevant information to beneficiaries), revealing secrets or private communications related to the trust or beneficiaries (indiscretion), misrepresenting facts (lack of candor), maintaining relationships at odds with the interests of the beneficiaries (lack of loyalty), favoritism among beneficiaries (failure of impartiality), or acting rashly (imprudence). A compliant trustee has one, and only one, purpose: to administer trust funds in the trustee’s control according to fiduciary and statutory rules for the benefit of persons whom the trust names according to the terms of that trust.
Exculpatory Provisions. A trustee may not insert any term into a trust that provides that the person who created the trust will not hold the trustee to account for his or her misdeeds. To insert such a clause is itself a breach of the trustee’s fiduciary relationship with the trustor (RCW 11.98.107).
“Where” is a trust?
If the trust document specifies that Washington is where the trust is located or specifies Washington law shall govern the trust administration, then Washington is the location (situs) of the trust, if one of these conditions is met: the trustee is a resident of Washington or has a place of business in Washington, more than an insignificant part of the trust administration occurs in Washington, the person who created the trust resided in Washington at the time the trust was established or when the trust become irrevocable, one or more qualified beneficiaries resides in Washington, or the trust hold real property located in Washington (RCW 11.98.005(1)).
- Even a trust that does not specify Washington as its situs or specify Washington law may be registered in Washington if one of the five conditions specified above pertains, and the trustee performs registration of the trust in Washington pursuant to RCW 11.98.005(2).
- A trust may be transferred to a situs outside Washington if the transfer: 1) is economical and convenient for the trust, 2) would not harm beneficiaries, 3) does not violate the trust terms, 4) a new trustee can administer the trust according to its terms in the new location, and 5) the trust meets one of the conditions for locating a trust in Washington in the new jurisdiction (RCW 11.98.045). To effect such a transfer of situs, the trustee must reach agreement of all parties to the trust (RCW 11.96A.220) or give notice of the contemplated change to all beneficiaries (for charitable trusts, to the Attorney General of Washington) sixty days before transfer. Without objection, the trust situs may be changed (RCW 11.98.051). The superior court of the county of situs in Washington may transfer trust situs (11.98.055).
What damages may a beneficiary receive if a trustee breaches his duties as trustee?
Measure of Damages. A breaching trustee owes to damaged beneficiaries the greater of 1) that amount required to restore the value lost to the trust by the trustee’s breach of trust, or 2) the profit made by the trustee attributable to his or her breach of trust. Co-trustees may recover from one another if one co-trustee was substantially more at fault than another, or if one trustee acted in bad fail or with reckless indifference to trust purposes (RCW 11.98.085).
If a trustee, after exercising reasonable care to learn relevant facts that affect the trust administration, fails to learn of a relevant event, the trustee is not liable for his or her lack of knowledge of the event (RCW 11.98.100).
Consent, Release, Ratification of Breaching Trustee’s Acts. A breaching trustee is not liable if the beneficiary injured consented to the conduct, released the trustee from liability, or ratified the breaching transaction, unless the trustee improperly induced the consent, release, or ratification, or at the time of the breach, the beneficiary remained ignorant of his rights or the material facts of the breach (RCW 11.98.108).
Venue. Actions against trustees may be filed in the county where a beneficiary resides, where the trustee resides, or where real property of the trust is located. If none of these factors pertain, the venue is in any county of Washington. If within four months of initial filing, venue may be changed to the county with the strongest connection to the trust (RCW 11.96A.050).
TEDRA Rules. Actions under RCW 11.96A (TEDRA) are special proceedings of the court. The statute’s provisions control over inconsistent provisions of the civil rules. TEDRA petitions must commence as new actions, which may then be consolidated with other actions (RCW 11.96A.090). TEDRA actions have their own rules which are specified, and which supersede other court rules (RCW 11.96A.100). Notice for TEDRA hearings is twenty days (RCW 11.96A.110). Discovery is permitted only on specific issues in controversy, or by court order (RCW 11.96A.115). Parties who cannot represent themselves may be represented for the purposes of the hearing by virtual representatives (RCW 11.96A.120). Interested parties may waive notice requirements for a trustee (RCW 11.96A.140). The court may appoint a guardian ad litem to represent the interests of any minor, incapacitated, unborn, or unascertained person to the proceedings (RCW 11.96A.160). TEDRA matters shall be heard by the trial court, unless a party is entitled to trial by jury (RCW 11.96A.170). Appeals from TEDRA orders proceed in the same manner as other civil actions (RCW 11.96A.200). The point of TEDRA is to facilitate non-judicial resolution of trust and estate disputes by written agreement signed by all parties, which agreement may be filed with the court. Such TEDRA agreements, when filed, become orders of the court (RCW 11.96A.210, 11.96A.220, 11.96A.230). A special representative (lawyer appointed by the court to represent the interests of parties who cannot represent themselves) of parties in a TEDRA action may seek court review and approval of any TEDRA agreement (RCW 11.96A.240, 11.96A.250). Any party to a TEDRA proceeding may require that the issues be referred to mediation and then arbitration, which then necessitates decision of the matter by these processes before a judge may address the matter (RCW 11.96A.290, 11.96A.300, 11.96A.310). Failure to comply with requests for mediation and then arbitration may result in court-imposed sanctions (RCW 11.96A.320).
A Superior Court judge may award attorney’s fees and costs to any party from other parties to the proceeding, from estate or trust assets, or from non-probate assets. It is not required that the litigation involved benefits the estate (RCW 11.96A.150).
Can I challenge a trust?
One may challenge a revocable trust within twenty-four months of the death of the trustor, or within four months of the death of the trustor if one received valid notice of the commencement of the trust. A trustee of a revocable trust may distribute property if, after giving notice, the trustee has received no objections within four months after formal notice pertaining to the trust. If the trustee receives an objection, then the objector must commence legal proceedings with sixty days. If a trust is determined to be invalid, then anyone who has received a distribution must return that distribution (RCW 11.103.050).
What reports must a trustee make to beneficiaries?
A trustee must deliver to beneficiaries an annual written itemized statement of current receipts and expenses made by the trustee, and, when requested, must itemize all property of the trust. This report may be filed with the Superior Court (RCW 11.106.020). Interim reports must be sworn on oath, and include: the period covered, the total trust principal, an itemized statement of all principal and income received or expended, balances at the close of the report period, how all principal is invested, the names of all beneficiaries, including contingent beneficiaries and whether each such beneficiary is known to be under a legal disability, description of unborn or unascertained beneficiaries. When a trust ends, the final report should also follow a final accounting in the same manner (RCW 11.106.030). Any beneficiary may file a petition, after a trust has been in existence for one year or one year has elapsed since the last report, seeking a trustee’s accounting of the trust assets (RCW 11.106.040). When a trustee files an accounting for trust assets, the clerk shall determine a return date and set a hearing for that date at which hearing the court shall consider all objections to the accounting (RCW 11.106.050). If there are objections, the court may appoint guardians ad litem to represent disable or unascertained persons (RCW 11.106.060). Jury trials are not permitted in such hearings, and the judge may charge all trust losses caused by the trustee’s negligent or intentional breaches of trust (RCW 11.106.070). The court’s decision in such hearings is final, but can be appealed (RCW 11.106.080). Adult beneficiaries may waive trustee accountings (RCW 11.106.100).
A trustee must keep all beneficiaries reasonably informed about the administration of the trust and of material facts necessary for the beneficiaries to protect their interests. A trustee must promptly respond to reasonable requests for information related to trust administration by a beneficiary, including providing a copy of the entire trust instrument to the beneficiary. Failure to honor these duties of providing information may result in the trustee being assessed with the beneficiary’s attorneys fees in compelling the trustee to comply (RCW 11.98.072(1)).
With limited exceptions, a newly-appointed trustee must notify beneficiaries of becoming trustee within sixty days of accepting that role. The details of what notice must be given are contained in the statute. The creator of a trust may waive the trustee’s duty of notice (RCW 11.98.072).
If a trust terminates or partially terminates, the trustee must notify beneficiaries of the trustee’s plan for distribution of the trust assets, to which plan the beneficiary may object within thirty days. The trustee must notify the beneficiary of his or her right to object and the time limitation. The trustee must distribute trust assets expeditiously, though the trustee may retain a reasonable reserve to pay debts, expenses, and taxes (RCW 11.98.145).
Beneficiaries of an express trust complaining of a trustee’s breach of duties must bring action within three years of the trustee’s report that made the beneficiary aware of the breach (RCW 11.96A.070).
A express trust’s trustee’s report is adequate where it provides sufficient information that the beneficiary knows or should have known of the existence of a potential claim, which, at a minimum, are:
- Statement of receipts and disbursements for the accounting period;
- Statement of assets and liabilities for the period;
- Trustee’s compensation paid in the period;
- Agents hired by the trustee and their compensation;
- Disclosure of monies borrowed, leases let, and all agreements relating to trust property that last for five years or more;
- Disclosure of all transactions equivalent to those listed at RCW 11.98.078;
- Disclosure that the person who received trustee’s report may ask the Superior Court to review the trustee’s acts and statements; and
- Disclosure that claims against trustee must be made within three years of the trustee’s report revealing the acts of which the beneficiary complains. If a trustee’s report is inadequate, then the beneficiary may bring an action for breach of duties against a trustee within three years of the trustee’s removal, resignation, or death, at the termination of the beneficiary’s interest in the trust, or after termination of the trust.
Administering Trust Funds (RCW 11.104A: Washington Income and Principal Act)
A trustee shall, in allocating receipts between income and principal:
- Adhere to the trust terms, even though the statute indicates otherwise;
- Shall follow this statute if the trust does not otherwise provide;
- Shall add receipts or subtract disbursements to principal if neither the trust nor this statute specify a different result;
- In all cases, the fiduciary shall administer the trust impartially based on what is reasonable to all beneficiaries, except where the trust expressly state that the trustee should favor one or more beneficiaries. Following this statute is deemed fair and reasonable as to all beneficiaries (RCW 11.104A.010).
Liability of Third Parties Dealing with Trustees.
A third person who in good faith deals with a trustee, which trustee is acting in breach of his or her duties as trustee, has no liability if the third person lacks knowledge of the trustee’s breach, even if the trustee misuses property given to him or her, or if the trust has terminated (RCW 11.98.105).
Other Trust Rules.
Tax rules governing trusts are contained at RCW 11.108. Charitable trust rules are contained at RCW 11.110. Rules regarding transfers to minors are contained at RCW 11.114, which chapter is called the Uniform Transfers to Minors Act. Animal trusts are treated at RCW 11.118.