The Past, Present and Future of fiduciary obligations under Washington Law

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NEW WASHINGTON TRUST ACT REVISED SLAYER
STATUTE

• The Past, Present and Future of fiduciary
  obligations under Washington Law

Presented by Stephanie R. Taylor
RandallDanskin A Professional Service Corporation
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Existing Statutes Impacted by SHB 1051

• RCW 11.02.005 Definitions and Use of Terms
• RCW 11.28.237 Notice of Appointment as Personal
  Representative, Pendency of Probate Proof by
  Affidavit
• RCW 11.68.090 Powers of Personal Representative
  Under Nonintervention Will Scope Relief from
  Duties, Restrictions, Liabilities by Will
• RCW 11.94.050 Attorney or Agent Granted
  Principals Powers Powers to be Specifically
  Provided For Transfer of Resources by
  Principals Attorney or Agent
• RCW 11.96A.030 Definitions (TEDRA)
• RCW 11.96A.050 Venue in Proceedings Involving
  Probate or Trust Matters
• RCW 11.96A.070 Statutes of Limitation
• RCW 11.96A.110 Notice in Judicial Proceedings
  Under this Title Requiring Notice
• RCW 11.96A.120 Application of Doctrine of Virtual
  Representation
• RCW 11.97.010 Power of Trustor Trust Provisions
  Control
• RCW 11.98.009 Application of Chapter Trusts
• RCW 11.98.039 Nonjudicial change of trustee
  Judicial appointment or change of trustee
  Liability and duties of successor fiduciary
• RCW 11.98.045 Criteria for transfer of trust
  assets or administration
• RCW 11.98.051 Nonjudicial transfer of trust
  assets or administration Notice Consent
  required
• RCW 11.98.055 Judicial transfer of trust assets
  or administration
• RCW 11.98.070 Power of trustee
• RCW 11.98.090 Nonliability of third persons
  without knowledge of breach
• RCW 11.100.090 Investment of Trust Funds
  Dealings with self or affiliate

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New Sections Added to Existing Chapters

• RCW 11.96A Trust and Estate Dispute Resolution
  (TEDRA)
• RCW 11.97 Effect of Trust Instrument
• RCW 11.98 Trusts
• Title 11 PROBATE AND TRUST LAWS

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Statutes affected by proposed amendments
RCW11.36.021 Trustees who may serve
RCW 11.96A.050 Venue in proceedings involving probate or trust matters
RCW 11.96A.070 Statutes of limitations
RCW 11.96A.120 Virtual Representation
RCW 11.96A.125 Mistake of fact or law in terms of will or trust Judicial reform
RCW 11.97.010 Power of trustor Trust provisions control
RCW 11.98.005 Trust situs and governing law
RCW 11.98.019 Relinquishment of powers by Trustee
RCW 11.98.039 Nonjudicial change of trustee Judicial appointment or change of trustee Liability and duties of successor fiduciary
RCW 11.98.041 Change of trustee- Discharge of outgoing trustee, when
RCW 11.98.045 Criteria for transfer of trust assets or administration
RCW 11.98.051 Nonjudicial transfer of trust assets or adminsitration Notice Right to Object
RCW 11.98.080 Consolidation of trusts
RCW 11.103.040 Trustors powers Powers of withdrawal
RCW 11.103.050 Limitation on action contesting validity of revocable trust Distribution of trust property
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Proposed New RCWs Added to Existing Chapters
RCW 11.98.004 NEW SECTION Definitions
RCW 11.98.015 NEW SECTION Accepting or declining trusteeship
RCW 11.98.071 NEW SECTION Duty to keep beneficiaries informed
NEW SECTION - Application
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Fiduciary Obligations

• Duty of Loyalty - RCW 11.98.078
• Codifies duty of loyalty
• Spells out circumstances in which trustee must
  provide additional information to beneficiary
• Sale, encumbrance or transaction involving the
  investment or management of trust property
  entered into by the trustee for the trustees own
  personal account or
• Transaction which is otherwise affected by a
  conflict between the trustees fiduciary and
  personal interests
• Transaction is voidable by beneficiary (without
  further proof) unless
• Trust authorized transaction
• Court approved (TEDRA Agreement)
• SOL has expired
• Beneficiary consented, ratified or released the
  Trustee
• Transaction was executed prior to the fiduciary
  relationship

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Fiduciary Obligations (cont)

• Transaction is presumed to be a conflict if it
  is entered into by the trustee witha corporation
  or other enterprise in which the trustee, or a
  person that owns a significant interest in the
  trustee, has an interest that might affect the
  trustees best judgment
• Presumption can be overcome if the trustee
  establishes that the conflict did not adversely
  affect the interests of the beneficiaries
• Conflict does not exist in an investment by the
  trustee in securities of an investment company to
  which the trustee provides services in a capacity
  other than as trustee
• Investment must comply with the prudent investor
  rules

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Notice to Beneficiaries

• Prior Law Case Law
• Allard v. Pacific Natl Bank, 99 Wn.2d 394 (1983)
• That the settlor has created a trust and thus
  required the beneficiaries to enjoy their
  property interests indirectly does not imply the
  beneficiaries are to be kept in ignorance of the
  trust, the nature of the trust property and the
  details of its administration.
• A Trustee has a duty to inform beneficiaries
  fully of all facts which would aid them in
  protecting their interests
• RCW 11.100.140
• A trustee must provide written notice of any
  "significant non-routine transaction" to "each
  person who is eighteen years or older and to whom
  income is presently payable or for whom income is
  presently being accumulated for distribution as
  income."
• However, this statute does not abrogate the
  Trustees obligation to keep the beneficiaries
  reasonably informed of all facts. Flohr v.
  Flohr, (unpublished) 2002 Wn. App. LEXIS 590.

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Notice to Beneficiaries (cont)

• RCW 11.97.010(2) Initial Notice
• Within 60 days of the acceptance of an
  irrevocable trust (or a revocable trust becomes
  irrevocable), the Trustee shall give notice of
• The existence of the trust
• The identity of the trustor(s)
• The Trustees name, address and telephone number
  and
• The right to request such information as is
  reasonably necessary to enable the enforcement of
  the beneficiarys rights
• Proposed Revision RCW 11.97.010(2) is deleted
  Replaced by New Section RCW 11.98.070

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Proposed notice to beneficiaries

• Proposed RCW 11.98.071 Duty to keep
  beneficiaries informed
• (1) A trustee shall keep all qualified
  beneficiaries reasonably informed about the
  administration of the trust and the material
  facts necessary for them to protect their
  interests
• Qualified Beneficiaries defined by RCW
  11.98.004 (Proposed New Section)
• (2) Sixty (60) day notice of existence of trust
  to Qualified Beneficiaries

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Notice to Beneficiaries (cont)

• Notice of Administration of the Trust Revised
  RCW 11.97.010(3)
• What information do they receive?
• All material facts necessary for them to protect
  their interests
• Presumption that information is sufficient if it
  contains
• Receipts and disbursements of principal and
  income
• Beginning and ending values of assets and
  liabilities
• Trustees compensation
• Agents hired by the trustee, their relationship
  to the trustee, if any, and their compensation
• Disclosure of any pledge, mortgage, option or
  lease of trust property, or other agreement
  affecting trust property binding for 5 years or
  more
• Disclosure of all transactions that are affect
  the duty of loyalty and could be a conflict of
  interest
• Statement that the beneficiary may petition the
  court to obtain a review of the statement and of
  the acts disclosed
• Statement that claims against the trustee for
  breach may not be made after 3 years from the
  date of the statement

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Notice to Beneficiaries (cont)

• What other information are beneficiaries entitled
  to?
• If requested, all information related to the
  administration of the trustee unless
  unreasonable under the circumstances
• Information must be turned over within 60 days of
  the receipt of the request

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Notice to Beneficiaries (cont)

• Who receives notice?
• All persons interested in the trust and
• All persons who would be entitled to notice under
  TEDRA if they were a party to judicial
  proceedings
• Virtual Representation (RCW 11.96A.120 (3)(d)
• Power of Appointment - Proposed revisions to RCW
  11.96A.120 change the how a holder of a power of
  appointment may virtually represent the
  permissible appointees
• Minor Beneficiaries
• If no guardian has been appointed, notice may be
  given to parents
• Charitable Organizations
• Attorney General if interest is future interest
  only
• Proposed RCW 11.98.071 Only qualified
  beneficiaries entitled to notice

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Proposed notice to beneficiaries (cont)

• Proposed RCW 11.97.010(3) Deleted
• Replaced with
• RCW 11.96A.070 Statutes of limitation (existing
  with proposed modifications) and
• Proposed RCW 11.98.071 Duty to keep
  beneficiaries informed
• Under the proposed legislation, obligations may
  be waivable by Trustor
• Statute of limitations does not start to run
  until such time as a beneficiaries receives
  required information under RCW 11.96A.070

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Proposed notice to beneficiaries (cont)

• Proposed RCW 11.98.071 Waiver
• Duty to keep beneficiaries reasonably informed is
  waivable as follows
• (3) TT not required to provide administration
  information to any beneficiary of a trust other
  than spouse if (a) spouse has capacity (b)
  spouse is only permissible distributee and (c)
  all other qualified beneficiaries are
  descendants of the trustor and the trustors
  spouse
• (4)No duty too keep beneficiaries reasonably
  informed or to inform them of the existence of a
  revocable trust
• (5) The trustor may waive or modify the
  notification requirement of (2) and (3) in the
  trust document or in a separate writing, made at
  any time, that is delivered to the trustee.

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Result of Breach of Fiduciary Duties

• Damages for Breach of Trust (new section to RCW
  11.98)
• Prior law discretion with the court
• Current Law A trustee who commits a breach of
  trust is liable for the greater of
• The amount required to restore the value of the
  trust property and trust distributions to what
  they would have been had the breach not occurred
  or
• The profit the trustee made by reason of the
  breach

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Waiver of fiduciary obligations

• RCW 11.97.010
• The Trustor of a trust may by the provisions of
  the trust relieve the trustee from any or all of
  the duties, restrictions and liabilities which
  would otherwise be imposed by law
• Exceptions
• A trustee cannot not relieved of its duty of good
  faith and honest judgment
• A trustee cannot be relieved of its duty to
  account (See, Estate of Hitchcock, 140 Wn.App.
  526 (2007)).
• Exculpatory Clauses
• A savings clause may save the trustee from
  liability for
• Mistake or error of judgment
• Losses not intentionally or voluntarily incurred
  or
• Negligence.

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Waiver of fiduciary obligations (cont)

• Non-Waivable Duties and Obligations
• It is against public policy to remove the trustee
  from all accountability
• A provision in a trust instrument is not
  effective to relieve the trustee of liability for
  a breach of trust committed in bad faith, or of
  liability for any profit for which the trustee
  has derived from a breach of trust.
• A saving or exemption provision will not save or
  limit the trustee from liability for
• Bad faith
• An excess of authority
• An abuse by the trustee of a fiduciary or
  confidential relationship to the settlor
• Breaches committed intentionally or with reckless
  disregard to the beneficiarys interest.

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Waiver of fiduciary obligations (cont)

• RCW 11.97.010
• In no event may a trustee be relieved of the duty
  to act in good faith and with honest judgment or
  the duty to provide information to beneficiaries
• Exculpation of Trustee RCW 11.98
• An exculpatory term which was inserted as the
  result of an abuse of a fiduciary relationship is
  unenforceable
• An exculpatory term drafted or caused to be
  drafted by the trustee is invalid as an abuse of
  a fiduciary relationship unless the trustee
  proves that the exculpatory term is fair under
  the circumstances and that its existence and
  contents were adequately communicated to the
  trustor
• Beneficiary may consent, ratify or release
  trustee

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Statute of limitations

• Revocable Trusts
• Prior Law Uncertain
• RCW 11.103.050
• Challenge to validity of revocable trust must be
  made at the earlier of
• 2 years (24 months) after Trustors death or
• 4 months after the Trustee provides notice of
  trusts existence and notice of the time allowed
  for commencing a challenge

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Statute of limitations (cont)

• Irrevocable Trusts
• Challenges to Administration
• Prior Law RCW 11.96A.070(1)(a)(i)
• An action against the trustee for breach of
  fiduciary duty must be brought within 3 years
  from the earlier of
• The time the alleged breach was discovered or
• The time the alleged breach reasonably should
  have been discovered
• The trustee has the burden of establishing when
  the beneficiary knew or should have known

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Statute of limitations (cont)

• Irrevocable Trusts (cont)
• RCW 11.97.010(3)
• If the Trustee provides the written statement
  required herein, the statue of limitations
  expires 3 years from the date the beneficiary
  receives the statement
• If the Trustee does not provide the written
  statement, the statute of limitations is 3 years
  from the first to occur of
• The removal, resignation, or death of the
  trustee
• The termination of the beneficiarys interest in
  the trust or
• The termination of the trust
• Proposed Changes Delete RCW 11.97.010(3)
  replace with existing RCW 11.96A.070

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Miscellaneous New Provisions

• Certification of Trust (New Section to RCW 11.98)
• Date Trust came into existence
• Identity of the Trustor
• Identity and address of current Trustee
• Relevant powers of Trustee
• Revocability or Irrevocability
• Authority of the cotrustees to sign or otherwise
  authenticate and whether all or less than all are
  required in order to exercise powers of the
  trustee
• Name of the trust or the titling of the trust
  assets

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Miscellaneous New Provisions (Cont)

• Venue - Revised RCW 11.96A.050
• Venue for trusts shall be
• For testamentary trusts, in the superior court of
  the county where the probate of the will is being
  administered, where any beneficiary resides or
  has a place of business, the county where any
  trustee resides or has a place of business, or
  the county where any real property that is an
  asset of the trust is located
• For all other trusts, in the superior court where
  any beneficiary resides, the county where any
  trustee resides or has a place of business, the
  county where any real property that is an asset
  of the trust is located
• Upon request for change, the court may change to
  the county with the strongest connection

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Miscellaneous New Provisions (Cont)

• Situs New Section to RCW 11.98
• If trust designates WA as situs or that WA law
  governs, then the situs is WA if one of the
  following conditions are met
• Trustee has place of business in WA or is a
  resident of WA or
• More than an insignificant part of the trust
  administration occurs in WA or
• Trustor resides in WA at the time situs is
  established or at the time the trust became
  irrevocable or
• One or more beneficiary resides in WA or
• Real property owned by the trust is located in WA
• Trustee may register trust in WA
• Must provide notice to beneficiaries who have 30
  days to object to such registration
• Transfer of trust administration to a foreign
  trustee does not change situs (Revised RCW
  11.98.039(6))

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TRUST MODIFICATIONS

• TEDRA RCW 11.96A.030
• Trust and estate attorneys have taken this
  section to allow any modifications or
  terminations of trusts
• However, RCW 11.96A.030(2)(h) and RCW 11.96A.125
  creates a new category under matter to provide
  that a matter is
• The reformation of a will or trust to correct a
  mistake under Section 11 of the new Act
• Section 11 of the Act provides that the terms of
  a will or trust, even if unambiguous, may be
  reformed to conform the terms of the intention of
  the testator/trustor if it proved by clear,
  cogent and convincing evidence, or the parties to
  a TEDRA Agreement agree that there is clear,
  cogent and convincing evidence, that both the
  intent of the testator/trustor were affected by a
  mistake of fact or law, whether in expression or
  inducement

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TRUST DISTRIBUTIONS

• New Section is added to RCW 11.98.145
• Distribution upon Termination
• Trustee may send a plan of distribution
• Must include notice that the beneficiary has a
  right to object to the plan, including any non
  pro rata distributions
• Must include the time period within which to
  object
• The beneficiaries right to object terminates if
  the beneficiary does not object within 30 days

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APPLICATION

• Application
• Act applies to all trusts created before, on or
  after 1/1/2012
• Act applies to all judicial proceedings
  concerning trusts commenced on or after 1/1/2012
• Any rule of construction or presumption provided
  in this act applies to trust instruments executed
  before 1/1/2012, unless there is a clear
  indication of a contrary intent in the terms of
  the trust
• An action taken before 1/1/2012 is not affected
  by this act
• If a right is acquired, extinguished or barred
  upon the expiration of a prescribed period that
  has commenced to run under any other statute
  before 1/1/2012, that statute continues to apply
  to the right even if it has been repealed or
  superceded

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Revisions to Washingtons Slayer Statute

• Washingtons Slayer Statute (RCW 74.34 and RCW
  11.84)
• Impact of Revisions
• A slayer or abuser is deemed to have predeceased
  the decedent as to property which would have
  passed from the decedent to the slayer or abuser
• Abuser is defined as one who participates in the
  willful and unlawful financial exploitation of a
  vulnerable adult

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Revisions to Washingtons Slayer Statute

• Financial Exploitation
• Use of deception, intimidation or undue influence
  by a person in a position of trust and confidence
  to obtain or use the property, income, resources,
  or trust funds for the benefit of a person other
  than the vulnerable adult
• Breach of a fiduciary duty (including the misuse
  of a trust) that results in the unauthorized
  appropriation, sale or transfer of property,
  income, resources or trust funds for the benefit
  of a person other than the vulnerable adult
• Obtaining or using the VAs property, income,
  property or trust funds without lawful authority,
  by a person or entity who knows or clearly should
  know that the VA lacks the capacity to consent to
  the release or use of such property.
• Vulnerable Adult
• An incapacitated person or a person who is
  otherwise unable to care for his or herself

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Questions???

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