The estate planning community has seen a growing interest in the ways in which inherited wealth may have an unintended, but detrimental impact on beneficiaries’ wellness and mental health, and how planning and the administration of trusts can be used to positively impact beneficiary well-being. In response to the growing needs and concerns of settlors and beneficiaries, in 2024 Delaware codified a unique “Beneficiary Well-Being Trust” statute – the first of its kind. See generally 12 Del C § 3345 (the “Beneficiary Well-Being statute” or the “Statute”). The Statute addresses several specific issues that arise in administering a trust for a beneficiary’s well-being. It is not intended to address all aspects of positive psychology, well-being and happiness. Rather, it specifically targets the empirically based impact that financial capability and family have on well-being. The Statute is an “opt-in” statute, meaning settlors can choose to reference it in their trust documents, and when they do so, the beneficiaries’ rights and interests in the trust will include the opportunity to receive “beneficiary well-being programs”. That feature will fit within whatever structural framework is drafted into trust’s governing instrument.
A recent newsletter appearing in Leimberg Information Services casts the Statute in a negative light. See Paul Hood & Jill Mastroianni, “Delaware’s Recently Enacted Section 3345 Mandating that Trustees Provide ‘Beneficiary Well-Being Programs’…,” Steve Leimberg Estate Planning Newsletter, May 6, 2025. That newsletter makes several misstatements about the Statute founded on conceptual misunderstandings about how the Statute works. The Statute does not “mandate” beneficiary well-being programs. The Statute is an “opt-in” statute for those who expressly elect to use it. It will not apply, for instance, to an existing trust unless the trust is modified to expressly reference the Statute. Any such modification is unlikely to occur in actual practice without the consent or ratification of all interested parties. A narrower version of the Statute was enacted as a new trustee power. 12 Del. C. § 3325(32), to be discussed below.
One can think of the “bundle of sticks” metaphor to understand what a beneficiary well-being trust adds to a traditional trust. In addition to whatever rights and interests a beneficiary may have in a trust created for their benefit, a Delaware beneficiary well-being trust adds an additional stick, entitling the beneficiary to receive beneficiary well-being programs at such times and for such purposes as the trustee determines reasonable and appropriate. For example, if a beneficiary turns age 18 and becomes eligible to receive account statements, the trustee may offer a consultation on how to read and understand trust statements and trust accounting, understand trust investment principles, begin to think about estate planning issues if there is substantial family wealth, etc. If a beneficiary gets married, gets divorced, loses a job, has a child, or upon the death of a parent who is a measuring life for the trust, the trustee can provide beneficiary well-being programs that equip the beneficiary to navigate the complex challenges, particularly as those challenges are impacted by being a beneficiary of a trust.
The Statute fits into the panoply of flexible trust options under Delaware law, such as dynasty trusts, purpose trusts, pre-mortem validation, total return unitrusts, silent trusts, use of designated representatives, asset protection trusts, letters of wishes and directed trusts.
A goal of the Statute is to provide an off-the-shelf solution that is easily incorporated into a trust agreement. As with many of Delaware’s powerful flexibility tools, the Statute offers an open architecture approach for drafters to consider how the principles of the Statute will be implemented. The Statute, as well as other provisions of the Delaware Trust Act (e.g., 12 Del C § 3303), enable a drafting attorney to craft a Beneficiary Well-Being trust that varies from the Statute. Because the parties must opt into the Statute, there is an opportunity to negotiate all of its terms. The Statute is not intended as a complete trust agreement. Like all trusts, the trust agreement will include, for example, provisions regarding whether the trustee or an adviser directing the trustee will provide beneficiary well-being programs, what discretion or applicable standard for distributions will apply, and how notice and information will be provided to the beneficiaries. Some independent drafting will be required.
A purpose of the Statute is to address the potential for trustee hesitancy regarding use of trust funds for beneficiaries’ well-being. Trustees can always provide similar well-being programs to beneficiaries, and indeed many trustees do this with their largest and most valuable client relationships. Without opting into the Statute, a trustee of a trust, even one with a broad discretion standard, may hesitate to expend trust funds and spend the time and expense necessary to deliver such programming, and would prefer specific authority to do so.
If a trust agreement expressly incorporates the terms of the Statute, the following provisions apply:
The trustees/advisers of a Beneficiary Well-Being trust must provide the beneficiaries individually or as a group with beneficiary well-being programs. 12 Del. C. § 3345(c). Subsection (c) provides further that the trustees/advisers must carry out this duty “in such manner as set forth in the provisions of the governing instrument.” This provision invites customization and variation from the Statute. In the absence of any express provisions, the trustee is authorized to implement and interpret the trust, subject to 12 Del. C. § 3315. In other words, the trustee’s discretion is subject to default Delaware law governing the trustee’s conduct. Under section 3315, a trustee can be held liable if it abuses its discretion.
A “beneficiary well-being program” is broadly defined to include any kind of program so long as it serves at least one of the purposes set forth in the Statute. The purposes envisioned by the Statute are grouped into the general categories of estate and asset planning, financial literacy and philanthropy, and a category related to family matters, such as family history, family governance, family values, family mental health and family connection. 12 Del. C. § 3345(b).
Notwithstanding, not all provisions of the Statute are defined. The term “family” is not defined by the Statute, as it means different things to different people. The drafting attorney should incorporate a definition of “family” that suits the client. In the absence of an express definition of “family,” the trustee is authorized to exercise its fiduciary judgment when interpreting terms of the trust. However, for trustees that do not wish to shoulder this burden, the Statute references “advisers,” an express nod to directed trusts. The Beneficiary Well-Being trust could be drafted with a direction adviser (perhaps a close family friend or long-term adviser) who may determine who is in the family and whether and to what extent trust funds might be expended for the family.
While the Statute requires that “trustees and advisers” provide the beneficiary well-being program, this is simply intended to signal that a Beneficiary Well-Being trust may be a directed trust and that a direction adviser, if so authorized by the trust agreement, is the party who would direct the trustee to provide the beneficiary well-being program.
Unless the trust agreement provides otherwise, the trustee may itself provide the beneficiary well-being program or may engage an affiliate of the trustee or third-party provider. 12 Del C. § 3345(d)(2). This provision is consistent with existing Delaware trust law, which authorizes a trustee to engage in financial transactions with its affiliates. 12 Del C. 3312(b).
Unless the trust agreement provides otherwise, the trustee may charge the trust for the cost of the beneficiary well-being program without diminution of value to its fee and without giving prior notice or disclosure of such fees to any beneficiary of the trust. 12 Del C. § 3345(d)(3). This provision is consistent with existing trust law concerning engagement of affiliates in financial transactions. 12 Del. C. § 3312(c). Under section 3312, when a trustee engages its affiliate in financial transactions, it may pay its affiliate the customary fee for service without reducing its trustee fee if it discloses the affiliated relationship and the fee arrangement. Disclosure may take the form of a stand-alone notice or an express provision in the trust agreement. If the trust agreement expressly provides that a trustee may engage affiliates in financial transactions, there is no requirement to send a notice about the fee or make a separate disclosure to the trust beneficiaries. 12 Del C. § 3312(c)(1).
The Statute provides the same kind of express disclosure to beneficiaries. It is contemplated that these terms will be directly incorporated into the trust agreement, or the parties will negotiate other terms. The drafting attorney should point this out to the settlor, of course. As with everything in the Statute, it is negotiable. A principal purpose of allowing the trustee, affiliates and third parties to provide beneficiary well-being programs, and allowing them to be compensated without necessitated prior notice to beneficiaries, is to address common law self-dealing prohibitions that might prevent the trustee and affiliates from providing these additional services to the trust. Also, this removes one of the main impediments that hinders trustees from providing these benefits to beneficiaries in the ordinary course of administration – providing well-being programs requires additional time and expense that goes above and beyond normal requirements for trust administration for which trustees are ordinarily compensated. Again, the beneficiary well-being trust is something that the settlor knowingly and willingly opts into, and the reasonableness of fees and the reporting of trust expenses to beneficiaries necessarily fall under the general fiduciary duties the trustee owes to the beneficiaries.
Another section of Delaware’s trust laws sets a default trustee fee for “qualified trustees” where the trust agreement fails to provide a trustee fee. The term “qualified trustee” applies to those trustees who are licensed to operate in Delaware and are under the supervision of a regulatory agency. 12 Del C. § 3561(a). In other words, it applies to sophisticated, professional trustees – the type of trustees who will understand that this type of trust will tend to be “high touch” and will likely insist on a compensation clause. In the very unlikely event that a corporate trustee fails to negotiate for a trustee compensation clause in a trust agreement, the corporate trustee will need to send a copy of its published fee schedule to the current permissible beneficiaries of the trust. 12 Del C. § 3561(b).
Section 3561 is not in tension with the part of the Beneficiary Well-Being statute that states that a trustee may be paid its full fiduciary compensation “to which it is otherwise entitled” without prior notice and disclosure. In the rare event that a trust agreement fails to provide express compensation to a corporate trustee, the trustee would be required under section 3561 to send notice of its fee schedule to the current permissible beneficiaries of such trust upon filing it with the Register in Chancery. Once any required notice is sent to the beneficiaries, the trustee may compensate itself and also compensate the well-being program provider without diminution to its fee and without sending prior notice and disclosure to the beneficiaries regarding the program provider’s fee. One thing to point out is that section 3345(d)(3) eliminates the need to send prior notice and disclosure regarding such fee payment. A corporate trustee will send notice of fee payment in the form of an account statement, which will disclose to the beneficiaries all fees and expenses paid during the reporting period.
The cost of a beneficiary well-being program may be considered an expense of administration to the extent permitted by law. 12 Del C. § 3345(d)(1). Given the broad range of beneficiary well-being programs, the Statute does not characterize them, leaving it to the trustee to make this determination. The trustee will need to consider whether such an expense should be characterized as an expense of administration or whether instead it is best characterized as a beneficiary distribution. The Statute correctly leaves this characterization up to default law.
It is incumbent on the trustee, when delivering beneficiary well-being programs, to be cognizant of whether such a program might be viewed as outside the bounds of the trust. The recent newsletter describes an outlandish first-class Hawaiian trip from a “secret admirer” that could produce a K-1. Clearly the trustee’s fiduciary duties would guide and limit the nature of the well-being program to avoid excessive and unnecessary spending and untoward phantom income. Moreover, a “secret admirer” scenario is unrealistic -- a beneficiary well-being trust is essentially the opposite of a silent trust approach. Both types of trusts aim to address the deleterious effects of inherited wealth, with the silent trust approach intended to postpone awareness of the trust for certain beneficiaries. In contrast, a beneficiary well-being trust seeks to engage with the beneficiaries, making it highly unlikely that a beneficiary well-being trust will be a silent trust. Notably, the Statute does not include any express terms waiving the trustee’s duty to inform beneficiaries about the trust.
A beneficiary well-being program will pair best with a broad discretion standard and a sprinkle/pot trust that provides the trustee with the authority to make distributions for well-being programs that need not include all beneficiaries equally, as long as the well-being purpose is met. A sprinkle/pot style trust would be useful if a beneficiary is not able or is unwilling to participate. This arrangement also allows different levels of education programs to be provided to different beneficiaries, as older generations may not desire the basic education that younger generations do. A sprinkle/pot style trust should be protective of any government assistance received by a beneficiary of such trust. Generally, when a person is a beneficiary of a fully discretionary trust with a limited purpose and multiple beneficiaries, the assets of the trust should not be considered a resource to determine entitlement to government benefits.
Notwithstanding, a beneficiary well-being program can also work with a health, education, maintenance or support (“HEMS”) standard. A Beneficiary Well-Being trust can fit within a HEMS standard in that the beneficiary well-being programs can be considered a subset of health and education. Should the settlor wish to include a HEMS standard, the drafting attorney might consider trimming the definition of beneficiary well-being programs to fit within the standard. As noted above, the terms of the trust can be tailored to the settlor’s unique purposes.
A companion statute was enacted with the Beneficiary Well-Being statute in 12 Del. C. § 3325(32). This statute provides an additional trustee power to all Delaware trusts whenever created, but the power is more circumscribed than the Beneficiary Well-Being statute. Section 3325(32)’s focus is more narrowly on financial skills and is subject to any applicable limitations or standards under the governing instrument. As with all trustee default powers, the trustee must exercise it within the context of the trust agreement. For example, a trust agreement governed by a HEMS standard must be administered in compliance with that standard.
It is important that the drafting attorney work closely with the settlor to select the appropriate trustee of the trust. The trustee should be knowledgeable and capable of facilitating a well-being program, and have a clear understanding of the settlor’s intent that the services be available. A discussion with prospective trustees regarding the cost of the services and the manner in which they will be provided is essential. The same process should occur with any direction adviser who may be considered by the settlor.
Conclusion
In conclusion, the Statute is a groundbreaking statute that addresses a need expressed by settlors and beneficiaries. As with any template, drafting attorneys should consider whether the off-the-shelf statute should be revised to comport with their client’s specific needs.
This article has been reprinted with permission.
