Right to an Accounting
Wilson v. Wilson, 690 S.E.2d 710 (N.C. Ct. App. 2010). Irrevocable trust beneficiaries brought suit against the trustee for breach of fiduciary duty. The beneficiaries requested that the trustee provide an accounting of the trusts, alleging that the trustee had allowed the settlor to take control of the trusts and invest the assets in his personal speculative business ventures. Beneficiaries also alleged that the trustee breached his fiduciary duty by failing to distribute income to the beneficiaries.
The trustee, in response to the request for an accounting, claimed that pursuant to the provisions of a trust, information in the nature of inventories, appraisals, reports or accounts was not required to be provided to any court or any beneficiary. The trustee then filed a motion for a protective order. The trial court granted the trustee’s motion, citing §361C-1-105 of the North Carolina UTC (no aspect of a trustee’s duty to inform beneficiaries is mandatory). Plaintiff appealed, claiming the trial court misinterpreted the North Carolina UTC.
The court of appeals overruled the trial court, concluding that the information sought by the trustees was reasonably necessary to enforce their rights under the trust, and therefore could not be withheld. The court reasoned that although the North Carolina UTC does not include portions of the UTC that require the trustee to keep beneficiaries reasonably informed about the trust administration, the North Carolina UTC does provide that the trustee has the duty to act in good faith. Under the Restatement (Second) of Trusts Section 173, “the beneficiary is entitled to such information as is reasonably necessary to enable him to enforce his rights under the trust or to prevent or redress a breach of the trust.” The court noted that “[a]ny other conclusion renders the trust unenforceable by those it was meant to benefit.” The court determined that the information sought by the beneficiaries was reasonably necessary to enable them to enforce their rights under the trust. Finally, the court explained that even if the settlor provides in the trust that an accounting is not required to be provided to any court or beneficiary, the trustee will be required in a suit for an accounting to show that he faithfully performed this duty.
The trust at issue in Zimmerman v. Zirpolo Trust, 2012 WL 346657 (Ohio App. 5 Dist.), contained this provision:
“[T]he Trustee shall use their best efforts to provide no information about the trust proceeds to the beneficiaries. It is my intention that the beneficiaries have no information about the proceeds until they are entitled to receive the proceeds.”
However, the relevant Ohio statute requires provision of information:
R.C. 5808.13 provides: “(A) A trustee shall keep the current beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.
The Court held that the statute controlled notwithstanding the trust provision.
In Bright v. Bashekimoglu, Record No. CL10-7348 (Va. 2012), the Virginia Supreme Court enforced trust terms that override the trustee’s duty to disclose under the UTC. In 2008, Melih Bashekimoglu created a revocable trust with himself and his wife as co-trustees. The trust terms provide as follows with respect to disclosure of trust information to the beneficiaries:
During any period that I am alive but incapacitated, and after my death, my Trustee will deliver any notice, information, or reports which would be otherwise be required to be delivered to me or a Qualified Beneficiary to a person designated by my Trustee. To preserve my privacy and the privacy of Qualified Beneficiaries under my trust agreement, while I am alive I request that my Trustee not provide any copies of my trust agreement or any other information which may otherwise be required to be distributed to any beneficiary under Virginia law to any beneficiary to whom the information is not directly relevant. The designated person may, in his or her sole discretion, and without waiver, distribute copies of all or any part of my trust agreement or other relevant information about my trust to one or more Qualified Beneficiaries or other interested parties during any period that I am incapacitated.
Melih died in 2009. Under the trust terms, his wife and two of his children were named as trust beneficiaries. A third child, Suzan Bright, was a contingent beneficiary and only entitled to distributions in the event her mother and two siblings predecease her. Before and after Melih’s death, Suzan repeatedly requested information about the trust from her mother but was denied.
In 2010, Suzan sued her mother as sole trustee for information about the trust. The trial court denied claim and she appealed. On appeal, the Virginia Supreme Court affirmed the trial court and denied Suzan information about the trust on the grounds that: (1) Suzan’s counsel conceded that she is a nonqualified beneficiary; (2) the trust terms modified the requirements of the Virginia Uniform Trust Code; (3) the trust terms modified the UTC rule that a nonqualified beneficiary may request information, and gave the trustee the discretion to decide whether to distribute the information, and therefore Suzan is not entitled to the information.
In Miness v. Deegan, 2013 NY Misc. LEXIS 1983 (2013), the trustee of a New York insurance trust was required to account to beneficiaries, regardless of trust terms providing for accounting only to settlor during settlor’s lifetime.
Michael Miness created an irrevocable insurance trust in 1988 for the benefit of his spouse and descendants, with two non-beneficiary co-trustees. One of the trustees resigned in 2009. The settlor’s children petitioned to compel the resigning co-trustee to account for his actions as trustee. The resigning trustee refused to account based on trust terms that provided that during the life of the settlor the trustee would account only to the settlor.
Because of their pecuniary interest in the trust, and the fact that the statute of limitations on their claims against the resigning co-trustee could expire while the settlor was still alive, the court ordered the resigning co-trustee to account notwithstanding the trust terms.
In re Rolf H. Brennemann Testamentary Trust, 21 Neb.App. 353 (Ct App NE Oct. 1, 2013), In the 1976 a testamentary trust is created by husband’s will and holds interest in company with the sole asset as a 5,000 plus acre farm. Terms of the trust provide income for life of surviving spouse then income to surviving children in equal shares and upon death of last surviving child the principal is to be divided and distributed to the then surviving grandchildren. Co-Trustees were the three children but at the death of a child such child’s oldest son could serve as Trustee. Over the years the farm become heavily encumbered by debt and no longer produces the income necessary for spouse. Trustees sought and received court approval to vote the company stock to sell the farm to one of the children for a 10 year installment sale which was later extended for another ten years. In 2010, one of the grandchildren filed a petition in the court for breach of duty for trustees failure to inform and report and sought to compel an accounting from the trustees.
Because the trust existence spanned several decades and during such time there had be a change in trustees as well as change in trust law the decision as to whether the trustees breached their duty to inform is broken down into three time frames, 1976 to 2002 (time during which original three trustees served), 2002 to 2004 (new trustees but old trust law applied), and 2005 to 2009 (new trustees and new trust law).
The lower court determined that at no point in time had plaintiff beneficiary met her burden of proof to show that the trustees had breach their duty to inform and therefore dismissed her claims.
The court of appeals reversed the lower court’s decision in that plaintiff did present evidence for the first and third time frames showing that trustees breached their duty to inform but that they adequately informed her during the second time frame.
Trustees did not send any information and could not produce any documentation prior to 2002, “[h]owever, the trust did not suffer any loss due to that breach and, thus, was harmless. Under the prior trust law of Nebraska, the accountings sent to the beneficiary in the form of a schedule K-1 were adequate to inform the beneficiary because she did not request further information, therefore the trustees did not breach their duty during the second time period. However, after 2004, Nebraska adopted the Uniform Trust Code and the court held that the schedules K-1 sent to the beneficiary were not adequate under the new standards, however, their breach was cured upon the filing of an adequate accounting.