When is a Beneficiary Entitled to an Accounting?


In most trusts, there are current beneficiaries and future beneficiaries.  A current beneficiary is someone who is currently entitled to receive, either mandatory or discretionary, distributions of income or principal.  A future beneficiary is only entitled to distributions of trust income or principal upon the death of the current beneficiary or beneficiaries.  The law in most states, including Maryland, has long held that a current beneficiary is entitled to receive an account, on an annual basis, of the income, expenses, gains, losses and distributions of the trust.   However, whether a future beneficiary was entitled to receive an account was not always required.

Today, the Maryland Court of Special Appeals held that a future beneficiary, i.e., someone who was not currently entitled to receive the income or principal of the trust, but is only entitled to receive a distribution upon the death of the current beneficiary, is entitled “to make a reasonable request for an accounting [of the trust] based upon his status as a Trust beneficiary who possesses a future interest in the Trust.”

Also, and maybe more importantly, the trust in this case was a joint revocable trust, one which both spouses create and are the trustees and beneficiaries.  This revocable trust divided into two trusts when the first spouse died.  One of these trusts was irrevocable that could not be changed by the surviving spouse.  The other trust was revocable and could be changed by the surviving spouse.  The Maryland Court of Special Appeals held that the future beneficiary was entitled to receive an accounting of both trusts, even the one trust that the surviving spouse could completely change.

In my practice, I have rarely created joint revocable trusts, except when I am almost certain that there will be no estate taxes at either spouse’s death.   This case confirms my belief that joint revocable trusts should not be used in Maryland when there will be the creation of an irrevocable trust at the first death in order to save estate taxes at the second death.  In those cases, I always recommend separate revocable trusts.  After this Maryland case, I will continue my practice and recommend separate revocable trusts for married couples who have a potential estate tax problem (i.e., a combined estate in excess of 1 million dollars, which is the amount of assets that can pass free of Maryland estate tax).

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