Wills and Trusts

Wyatt, Tarrant & Combs, LLP


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Agent Authority to Enter Arbitration Agreements within Nursing Home Admission Forms – Updated

By Mary Elizabeth Anderson

Problems with arbitration agreements and nursing homes are not new, and whether an agent acting under a power of attorney can bind the principal to an arbitration clause when admitting the principal to a nursing home was the subject of an eReport article in February 2014.

On May 15, 2017, the Supreme Court of the United States (the “Supreme Court”) entered an opinion that reversed in part and vacated in part a Kentucky Supreme Court decision regarding an agent’s authority to enter into nursing home arbitration agreements.

The Kentucky Supreme Court consolidated three cases to determine “whether, based upon the language of the particular power-of-attorney instrument, an arbitration agreement was validly formed between the respective nursing home facility and the resident whose interests were thereby affected.” In two of the cases, Wellner and Clark, the court determined the agreements were not valid because Continue reading


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Heckerling 2015

Estate_PlanningEarlier this month over 3,000 estate planning professionals comprised of Attorneys, Financial Planners, CPAs, Trust Administrators and others gathered in Orlando, Florida for the nation’s leading estate planning conference, the Heckerling Institute on Estate Planning.  Now celebrating its 49th year, Heckerling is designed for sophisticated attorneys, trust officers, accountants, insurance advisors, and wealth management professionals who are familiar with the principles of estate planning, but still offers fundamental programs to refresh and reinforce the basic theories underlying the most sophisticated plans. If you were not able to attend this week-long event filled with tax and non-tax planning topics, recent developments and other insightful tidbits of information, the American Bar Association’s Real Property Trust and Estate Section has a group of volunteers who report on each lecture at Heckerling.  These reports are emailed through the RPTE listserve and are available on their website.  One of Wyatt’s associates, Beth Anderson, was an ABA reporter this year, and you can read her reports as well as all the other reports here.


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Gifts Must Be Delivered (Usually)

Gifts Must Be Delivered (Usually)

In Estate of Roger T. Hansen, 810 N.W.2d 358 (Wis.App., 2012), the decedent was busy changing his Will, including writing his attorney to ensure that certain notes were forgiven in the Will, but died before signing it.  The obligor argued that the forgiveness was a gift causa mortis – but the court held otherwise because nothing was delivered to the donees.

In Greene v. Greene, 938 N.Y.S.2d 629 (N.Y.A.D. 2 Dept., 2012), the issue was whether a letter directing that certain bonds were to be reregistered  in the recipient’s hands was an inter vivos gift when the envelope stated it was only to be opened after the sender died, and it was.  The court held no inter vivos gift because there was no present transfer of ownership.

In Mendenhall v. Mountain West Farm Bureau Mutual Insurance Company, 274 P.3d 407 (Wy. 2012), the issue, for accident insurance purposes, was whether a truck had been given to the driver.  The facts were:

In January 2008, Lucas told David Nelson (Nelson), the owner of Wyoming Electric, that he was looking to acquire a pickup truck. Nelson decided to give Lucas one of the old company trucks. Lucas took the keys to the 1997 Ford truck from the Wyoming Electric office, took possession of the truck, and retained possession of the truck. Lucas was responsible for all the expenses associated with the truck, and on January 29, 2008, he added the truck to his Allstate automobile insurance policy. Nelson and Wyoming Electric did not exercise any control over the truck after Lucas drove it off the company lot. However, Nelson and Lucas did not apply for a new certificate of title reflecting Lucas as the owner of the truck until April 16, 2008. Additionally, the truck’s registration and plates remained in Wyoming Electric’s name and the truck was not removed from Wyoming Electric’s Mountain West insurance policy.

The court declined to require formal transfer of title:

The parties agree that Nelson gave Lucas the truck; that Lucas removed the keys from the Wyoming Electric office and took possession of the truck; that Lucas was responsible for all expenses associated with the truck and purchased insurance; and that Nelson and Wyoming Electric did not exercise any further control over the truck. The fact that Nelson gave Lucas the truck, and allowed him to leave with possession of the truck, demonstrates that Nelson had the present intention to make an immediate gift. Additionally, the stipulated facts show that Nelson actually delivered the truck to Lucas, divesting himself of dominion and control. Finally, the facts show that Lucas accepted the truck when he drove it off Wyoming Electric’s property and took responsibility for all expenses related to the truck. The undisputed facts, as applied to the elements of a gift, clearly demonstrate that Nelson transferred ownership of the truck to Lucas through an inter vivos gift.

Turney P. Berry

Louisville, Kentucky


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Power to Amend is Not Power to Revoke

Power to Amend is Not Power to Revoke

In Nederlander v. Papiano, 2012 WL 733888 (Cal.App. 2 Dist. 2012), the settlor of a revocable trust retained a power to amend the trust unilaterally but could only revoke the trust with the consent of non-adverse trustees.  As he needed or wanted money over the years he amended the trust to take money out.  The court concluded that amendments were really revocations and held the trustee liable.  The opinion states:

But we find it unnecessary to determine whether Scott needed to obtain the trustees’ consent for amendments generally or whether the drafting error would have necessitated a modification of the express terms of the trusts. Rather, we only decide whether Scott could use the amendment provision to effectuate a revocation without the trustees’ consent. We conclude that the eight purported amendments functioned as partial revocations because the only purpose they served was to allow Scott to withdraw funds, and their only effect was on the corpus of each trust. (See Rest.3d Trusts, § 63, com. e, p. 446 [power to revoke in part allows settlor to withdraw some rather than all property from trust].) These amendments did not modify any of the terms of the trust documents and did not delete the consent requirement for full or partial revocation. Since the trust instruments expressly require that the trustees consent to revocation, it follows that amendments used solely to revoke the trusts required the trustees’ consent. Any other interpretation would render the limitation placed on the settlor’s power to revoke meaningless and would defeat the settlor’s expressed intent.

We disagree with appellant that the drafter’s chosen nomenclature determines the effect of the amendments. The trust instruments do not state that a writing is effective as an amendment or a revocation only if it is appropriately titled. Nor do we agree that exempting each withdrawal from all trust provisions to the contrary can properly be characterized as amending the trusts. The settlor has a right to borrow funds with interest or security, and he also has the right to withdraw funds by partially revoking the trusts, but only with the trustees’ consent. (Art. 4, ¶ CC; Art. 6, ¶ A) Each trust amendment purported to suspend all trust provisions, so that Scott could withdraw funds. Each then provided that, except for that withdrawal, all terms and provisions “shall remain intact and in full force and effect.” The amendments did not change the beneficiaries’ rights or the trustees’ duties. (Cf. Heifetz v. Bank of America (1957) 147 Cal.App.2d 776, 783 ( Heifetz) [settlor amended trust to eliminate all beneficiaries except her daughter and with daughter’s consent revoked trust].) Thus, by their own terms, they did not change the trusts in any way, aside from reducing the corpus.

In the petition for rehearing, appellant argues that Heifetz, supra, 147 Cal.App.2d 776 mandates a contrary result. We do not agree. The trust instrument in that case allowed the settlor to revoke the trust but did not expressly reserve a right to amend. ( Id. at p. 778.) A later amendment made irrevocable a trust corpus of up to $150,000. ( Id. at p. 779.) The appellate court implied the settlor’s power to amend from her reserved power to revoke the trust. ( Id. at p. 782.) The court held the amendment that made the trust irrevocable up to $150,000 left the settlor free to revoke the trust in other respects, such as by subsequently eliminating all beneficiaries except her daughter. ( Id. at p. 785.) She was then free to revoke the trust with the consent of the sole remaining beneficiary. ( Ibid.)

It is important to point out not only what Heifetz involved, but also what it did not. The case did not involve a conditionally revocable trust that required the trustee’s consent to revocation as a protection against the settlor’s subsequent improvident change of mind. The Heifetz court’s reasoning about the settlor’s freedom to change her mind applied to a trust revocable in all respects other than the corpus amount. ( Heifetz, supra, 147 Cal.App.2d at p. 785.) The implied power to amend was coextensive with that partial power to revoke. ( Ibid.) In contrast, Scott did not have an unfettered right to change his mind if the change would result in a full or partial revocation.

Additionally, appellant assumes that, like the settlor in Heifetz, Scott first amended the trusts to deprive the beneficiaries of their rights and then drew down the trust corpus. But as we have explained, the amendments, as drafted, did not change the beneficiaries’ rights or the trustees’ duties. Rather, they allowed Scott to withdraw funds, notwithstanding the beneficiaries’ unaltered rights, the trustees’ unaltered duties to the beneficiaries, and the requirement that the trustees consent to any full or partial revocation. They affected the corpus of the trusts and nothing else. It is important to recall that the provision requiring the trustees’ consent for any revocation was included for the express purpose of protecting the beneficiaries from the kind of action Scott took against their interests.

In the two other cases appellant cites, the courts declined to imply a general power to amend or revoke expressly irrevocable trusts from either the settlor’s right to withdraw trust assets or from the settlor’s subsequent conduct. (See Crook v. Contreras (2002) 95 Cal.App.4th 1194, 1209; Laycock v. Hammer (2006) 141 Cal.App.4th 25, 30–31.) Like Heifetz, these cases do not involve conditionally revocable trusts, and their reasoning does not support appellant’s position. Because they partially revoked the trust’s corpus, the purported amendments required the trustees’ consent.

Turney P. Berry

Louisville, Kentucky


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Arbitration Provisions

Arbitration Provisions

Is a trust provision requiring that the trustee and beneficiaries submit to binding arbitration enforceable on the beneficiaries?  Not in California, held the California Court of Appeals in Diaz v. Bukey, 125 Cal.Rptr.3d 610 (Ca. App. Ct. 2011).  The court followed an Arizona decision which it summarized as follows:

In Schoneberger v. Oelze (2004) 208 Ariz. 591, 96 P.3d 1078, the court construed an arbitration provision in a trust substantially similar to that involved here. We find its reasoning persuasive. In Schoneberger, two trust beneficiaries filed separate, but similar, lawsuits against the settlors and trustees of the trusts asserting claims of breach of trust, conversion and fraudulent concealment, mismanagement and dissipating trust assets. Among other relief, each beneficiary demanded an accounting.

Defendants answered, denied the allegations of wrongdoing and alleged that the beneficiaries’ claims were subject to mandatory arbitration under the Arizona arbitration statute. The defendants asserted the arbitration clauses in the trust documents constituted provisions in a written contract requiring arbitration, and although the beneficiaries were not signatories to the trusts, they were nevertheless obligated to arbitrate as third party beneficiaries. Alternatively, they contended the beneficiaries were equitably estopped from objecting to arbitration as they were affirmatively seeking benefits under the trusts. The beneficiaries opposed defendants’ motion to compel arbitration. They argued the arbitration provisions in the trusts were unenforceable because the trusts were not contractual agreements. They also asserted that, as nonsignatories to the trust documents, they had never agreed to arbitrate their claims against the defendants.

In Schmitz v. Merrill Lynch, 939 N.E.2d 40 (Ill. App. 2010) the trustee entered into a “client relationship agreement” with an investment advisor that contained an arbitration provision.  The provision did not bind the beneficiaries because the beneficiaries were not contractually bound to the investment advisor.

In Rachal v. Reitz, 2013 Tex. LEXIS 348 (2013), the could held that an arbitration clause in trust was enforceable against non-signatory beneficiaries.  A.F. Reitz established a trust for the benefit of his son, John, and appointed himself as initial trustee and Hal Rachal Jr. as successor trustee. After A.F. Reitz died, Rachal became trustee of the trust.  John sued Rachal as trustee alleging breach of fiduciary duty by failure to account and looting of the trust for personal gain. The trustee moved to compel arbitration of the suit under the arbitration provision in the trust. The trial court denied the motion and the trustee appealed.

On appeal, the Texas Court of Appeals sitting en banc (with four dissenting justices) affirmed on the grounds that: (1) the trust document did not satisfy the requirement for a valid contract; and (2) the settlor’s intent does not transform the trust into a contract to arbitrate between the successor trustee and the beneficiary.

The Texas Supreme Court reversed the Court of Appeals and held that the arbitration clause was enforceable, on the grounds that:  (a) Texas courts enforce the settlor’s intent over the objections of the beneficiaries that disagree with the trust terms; (b) The Texas Arbitration Act applies to written “agreements”, and the Texas legislature could have limited the Act to “contracts” and did not do so, therefore the legislature intended to include all agreements and not just contracts; (c) the Act does not define “agreements”, but the common definition is a manifestation of mutual assent; (d) mutual assets to an arbitration provision exists where a non-signatory party has obtained or is seeking substantial benefit under an agreement through the doctrine of “direct benefits estoppels”; (e) deemed assent exists here through direct benefits estoppels because the trust beneficiary did not disclaim his interest in the trust, did not challenge the validity of the trust, and attempted to enforce his rights under the trust and sought the benefits provided to him under the terms; (f) a valid underlying contract is not required to apply direct benefits estoppel; (g) the claims in this case were within the scope of the arbitration provision, which required arbitration of “any dispute of any kind involving this Trust or any of the parties or persons connected herewith”; and (h) the other trust provisions that exonerate the trustee from liability do not defeat the arbitration provision which applies “notwithstanding anything herein to the contrary” and could apply where a claim is filed in court and the direct benefits estoppel doctrine does not apply (which presumably would mean only claims by non-beneficiaries under the court’s reasoning).

Turney P. Berry

Louisville, Kentucky


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Kentucky Uniform Trust Code

Effective July 15, 2014, Kentucky will join the ranks of states that have adopted the Uniform Trust Code (UTC).  Although not yet codified and still only available as HB 78, Kentucky’s version of the UTC will be codified as KRS Chapter 386B.  The UTC has been enacted in 26 1 States including Missouri, Ohio, Tennessee (read Rob Malin’s post regarding Tennessee’s not so uniform trust code here), Virginia and West Virginia.  The purpose and intent in enacting the UTC is to codify the common law principles and standards regarding trusts and trustees including the duties of loyalty, care, notice, inform and report, and prudent investment for both corporate and individual trustees.  The UTC is a comprehensive statute that fills in the gaps of current Kentucky law both statutory and common.  Among the important matters the UTC addresses are the following:

Trustee Investment Standard.

Section 782 provides that the “prudent investor” rule of KRS 286.3-277 will apply to all trustees. Current law provides that the prudent investor rule applies to corporate trustees while a confusing mix of the common law “prudent man” rule and the “legal list” of KRS 386.020 applies to individual trustees. There is no discernible reason for applying different investment rules to corporate and individual trustees and Kentucky is unique in doing so. This change conforms Kentucky law with the law in the overwhelming majority of states.

Jurisdiction.

Section 15 of the UTC clarifies which court has subject-matter jurisdiction over trust matters.  The current law is confusing because it is unclear whether an inter vivos trust is a “probate” matter over which the district court has jurisdiction, although in many cases it is clear that the district court is the appropriate forum.  Under the UTC, absent specific language in another statute, the District and Circuit Courts have concurrent jurisdiction over all trust actions. The District Court has exclusive jurisdiction over actions first filed there unless an opposing party files an action involving the same matter in Circuit Court within 20 days, in which case the district court is divested of jurisdiction.  The rational of this rule is that if the matter truly is “adversarial” then the opposing party should be allowed to bring the matter before the court that is best suited to handle contested issues.  However, if all parties are in agreement that the matter is best handled in District Court then the matter should be allowed to stay in District Court.  This change does not affect the Circuit Court’s jurisdiction over matters specifically granted by other statutes.

Capacity to create or revoke a revocable trust.

Section 46 provides that the capacity required to create or revoke a revocable trust is the same as required to make a will.

Revocable Trusts are Subject to the Claims of the Settlor’s Creditors.

Section 43 clarifies that the assets of a revocable trust can, upon the death of the settlor, be subjected to the claims of the settlor’s creditors if the settlor’s estate has insufficient assets with which to satisfy the claims. This is an issue which has been the subject of litigation and the UTC resolves the issue by adopting a rule of fairness.

Revocation of a Revocable Trust.

Section 47 sets forth rules regarding the revocation of a revocable trust, including under what circumstances a revocable trust may be revoked by a later will of the settlor, when an attorney-in-fact may revoke a revocable trust, and when a conservator or guardian may revoke a revocable trust.

Statute of Limitations for Breach of Trust and to Contest Validity of a Revocable Trust.

The UTC clarifies the statute of limitations for breach of trust, which under current law is unclear.  Section 83 provides a short one year limitations period if a Trustee adequately discloses the existence of a potential claim and informs the beneficiary of the time allowed for commencement of a proceeding. If no such disclosure is provided, Section 83 provides that limitations does not run on a claim for breach of fiduciary duty until five years after the first to occur of the trustee’s removal, death or resignation or the termination of the trust or termination of the beneficiary’s interest in the trust. Section 49 provides that an action to contest a revocable trust must be brought within two years after the settlor’s death, which is the same rule applicable to will contests.

Virtual Representation.

Current law is uncertain regarding who can bind or represent  unborn, minor or unascertainable beneficiaries.  Sections 18-22 of the UTC set forth clear rules regarding the representation of the interest of another including when virtual representation may apply and when it does not.  Section 20 lists who with a special relationship to another person may bind that other person.  For example, a parent may bind a child absent a conflict of interest.  Section 21 sets forth the general rule that a person with a substantially identical interest can bind an otherwise unrepresented minor, incapacitated, or unborn person or a person not reasonably ascertainable.

Notice and Duty to Inform.

Section 7 of the UTC clarifies how a Trustee must give notice and Section 72 clarifies to whom a Trustee owes a duty to inform and report and what information must be given.  Section 72 requires the trustee within 60 days of its acceptance of the trust to provide the “qualified beneficiaries” (essentially those beneficiaries currently entitled to distributions, the immediate successor beneficiaries and those who would receive the trust property if the trust terminated) certain relevant information, including notice of the existence of the trust, the identity of the settlor, and the right to receive a copy of the trust instrument. Section 72 also sets forth the trustee’s duty to account to the beneficiaries. Section 72(2) specifies the extent to which the settlor may circumscribe the trustee’s duty to provide information regarding the trust.

Settlement Agreements Relating to Trusts.

In order to enhance judicial economy, Section 9 of the UTC provides for specific non-judicial settlement agreements between persons interested in a trust, including, for example, settlements relating to the meaning of the terms of a trust instrument. This provision facilitates the making of agreements by giving such agreements the same effect as if approved by the court, provided the agreement contains terms and conditions that a court could properly approve and would not be contrary to law.  Section 33 codifies the common law rule that a noncharitable trust may be modified or terminated without court approval provided the settlor and all beneficiaries consent.

Elder Law.

Section 11 of the UTC abolishes the doctrine of worthier title as applied to trusts.  Abolition of this doctrine insures that certain benefits of federal law, including the right of a disabled person under the age of 65 to create a supplemental needs trust for his own benefit provided that at death any assets remaining in the trust are used to reimburse the state for Medicaid benefits provided to the settlor during his or her lifetime. All of the states which border Kentucky have abolished this doctrine with the exception of Ohio. The UTC also includes a specific statement that the creator of a first party supplemental needs trust is not a “settlor” of the trust for purposes of the spendthrift statute. Section 41(8)(a)(4) – (6). Section 73 confirms that a settlor may create a purely discretionary trust.

Distributions from Trusts.

To further promote the expeditious distribution of trust assets and address the often time consuming and costly dilemma that can arise when a trustee is reluctant to make a distribution absent beneficiary approval and the beneficiary is reluctant to approve until the assets have been distributed, the UTC has two specific sections (76 and 77) regarding trust distributions. Section 76 applies to all distributions unless the expedited distribution method in Section 77 is invoked.  The expedited distribution method would only apply if all of the interested parties are in agreement and would provide for a simpler method of distributing assets when the distribution is one that is considered routine or directed by the trust document itself.

Pet Trusts.

Section 30 authorizes the creation of a trust for the benefit of an animal and provides rules with respect to such trusts.

Charitable Trusts.

Section 27 clarifies that the court may select the charitable purpose or beneficiaries of a charitable trust if the terms of the trust do not indicate a particular beneficiary or purpose. Section 55(2)(c) provides that the trustee of a charitable trust may be removed upon the request all of the qualified beneficiaries provided notice is given to the Attorney General and the court finds that removal of the trustee best serves the interests of all of the beneficiaries.

Modifications to Advance the Purposes of the Trust.

Section 34 authorizes the court to modify a trust to meet changes in circumstances not anticipated by the settlor provided any such modification would further the purposes of the trust.

Delegation.

Section 66 authorizes the trustee to delegate duties and powers that a prudent person of comparable skills could properly delegate under the circumstances. Section 75(29) authorizes a trustee to employ an agent to perform any act of administration, whether or not discretionary.

Proposed Distribution.

Section 76 authorizes a trustee to present a proposal for distribution upon termination of the trust. If the beneficiary does not object to the proposal within 30 days the beneficiary has no right to object provided the trustee notifies the beneficiary of the right to object and the time for doing so. This provision brings the “proposed” settlement procedure applicable to estates pursuant to KRS 395.627 into the law of trusts.

Beth Anderson

Louisville, Kentucky

 1 Alabama, Arizona, Arkansas, District of Columbia, Florida, Kansas, Maine, Massachusetts, Michigan, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, Virginia, West Virginia, Wyoming.

2 All references to UTC sections are as listed in HB 78


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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.

Turney P. Berry

Louisville, Kentucky