By: Attorney Tom Vercautern

Email: tvercautern@hbslawfirm.com

Phone: 608-257-0945

When reviewing your estate plan, it is important to evaluate whether any changes in the law or tax code have been implemented since the documents were signed. For example, the introduction of the revamped Wisconsin Trust Code in 2014 imposed several new duties for trustees and clarified other existing obligations.  While some of the new duties do not apply to certain trusts, all trustees must be aware of the changes to ensure that they are meeting their obligations.

One such obligation is the default duty under Section 701.0813 to inform and report to not only current beneficiaries, but other “qualified beneficiaries” who so request. “Qualified beneficiaries” is defined to include both the current income and principal beneficiaries of a trust as well as any beneficiaries that would be entitled to income or principal if the current beneficiary’s interest terminated.

Therefore, a beneficiary of an irrevocable trust, who is entitled to the trust’s residue upon the death of the primary beneficiary, may request (and thus obligate the trustee to provide) a trustee’s report that shows all trust property, liabilities, receipts, and disbursements. This can lead to conflict between the current and residual beneficiaries as the residual beneficiaries may question the decision making of the trustee.

Imagine a blended family where Father remarries, but has two children from his first marriage. Father passes away and his estate plan calls for the creation of an irrevocable Family Trust for the benefit of his surviving Wife, with any residue to his children upon Wife’s death.  As residual beneficiaries, the children are therefore qualified beneficiaries.  If the default rule is applied and one or both of the children makes such a request, the trustee must provide reports to the requesting party, even if Wife objects.  A conflict may arise if the children feel that Wife is receiving too much trust principal, even though Father intended for Wife to continue her accustomed lifestyle.

The duty to inform and report to all qualified beneficiaries is the default rule under the Wisconsin Trust Code. Therefore, it can be limited by language in the trust document itself.  The default rule does not apply to trusts that were created and irrevocable as of July 1, 2014.  However, a revocable trust that was executed prior to July 1, 2014, but does not become irrevocable until some point after that date is subject to the default rule.

All individuals with a revocable trust should examine their documents and determine whether they want the Wisconsin Trust Code’s default rules to apply. If not, they will need to amend the language of the document to clarify to whom the trustee must report.