How to Compel an Accounting from a Reluctant Trustee--and How a Trustee May Defend Such a Request

How to Compel an Accounting from a Reluctant Trustee--and How a Trustee May Defend Such a Request

How do you advise a trust beneficiary who has repeatedly requested information from a trustee of a trust in which the beneficiary has an interest, only to be met with silence, delay, or incomplete and inconsistent responses? In this Analysis, trust litigator Dawn Hall Cauthen discusses this frequently-encountered problem in California trust and estate practice. She writes:

First Task: Review the Trust Instrument

     The first task the practitioner must undertake when representing a beneficiary is to review the trust instrument to determine whether the trustee owes a duty to account or report and the scope of that duty. Reviewing the trust instrument is the key to determining whether the trustee owes a duty to account and a duty to report, and, if such duties exist, if they are owed to the beneficiary making the demands. Because a breach of these duties can result in considerable harm to a trust beneficiary, ascertaining whether the trustee owes a duty to and a duty to report is an essential determination.

     The trust instrument determines the nature and scope of a trustee's duty to account and report [Prob. Code §§ 16061, 16062]. The trust instrument may expand, restrict, or waive the duty to account and report, subject to certain restrictions, some of which are discussed below. It is important to note that although the trust instrument may waive a trustee's general duty to account when the trustee is not a disqualified person, a trustee nonetheless may be compelled to account "upon a showing that it is reasonably likely that a material breach of the trust has occurred" [Prob. Code § 16064(a)]. As such, a trustee cannot not rely upon exculpatory language in the trust instrument to refuse to account to a beneficiary.

     ....

Steps Before Filing Petition to Compel

     Before filing a petition to compel an account or report, counsel for a beneficiary must review all prior correspondence between the beneficiary and the trustee to determine if the beneficiary has waived his or her right to an account or report. A trustee is not required to account to a trust beneficiary who has waived his or her right to an account and report [Prob. Code § 16064(c)]. To be valid, the waiver must be in writing and may be revoked, also in writing, by the beneficiary at any time [Prob. Code § 16064(c)]. A trustee must account for all acts in the current accounting period and all future accounting periods to a trust beneficiary who has revoked his or her waiver and who is entitled to an account [Prob. Code § 16064(c)].

     Before a beneficiary may file a petition to compel an account or report, the beneficiary must comply with certain prerequisites. Accordingly, counsel for a beneficiary must be diligent in fulfilling and documenting the prerequisites. Specifically, before a trust beneficiary may petition the court to compel a trustee to account or report, the trust beneficiary must request, in writing, such account or report from the trustee [Prob. Code § 17200(b)(7)]. Because the date that the request is made is significant to whether a trust beneficiary may petition the court for an order compelling an account or report, counsel for the beneficiary should send the written request to the trustee via certified mail, return receipt requested, or some other form of delivery that provides proof of delivery. The trustee is permitted 60 days in which to provide the requested information. As such, a trust beneficiary may not file a petition to compel an account or report prior to 60 days from the time that the trust beneficiary requests an account or report in writing [Prob. Code § 17200(b)(7)]. Finally, a trust beneficiary may not petition the court for an order compelling the trustee to account or report if the trustee has provided an account or report within the six-month period preceding the trust beneficiary's request to account or report [Prob. Code § 17200(b)(7)].

....

Effect of Exculpatory Clauses or Beneficiary's Consent

     Although exculpatory clauses relieving a trustee from liability are generally permitted [Prob. Code § 16461(a)], exculpatory clauses relieving a trustee of all liability are against public policy and all exculpatory clauses are to be strictly construed [Estate of Ferrall (1953) 41 C2d 166, 174, 258 P2d 1009 [enhanced version available to lexis.com subscribers], Estate of Collins (1977) 72 CA3d 663, 673, 139 CR 644 [enhanced version]]. There are statutory limitations on exculpatory clauses. For example, an exculpatory clause relieving a trustee from all liability is not effective to relieve the trustee from liability for breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary [Prob. Code § 16461(b)]. A trustee may not be relieved of liability for any profit that the trustee derives from a breach of trust [Prob. Code § 16461(b)].

Access the full version of Compelling an Accounting From a Reluctant Trustee with your lexis.com ID. Additional fees may be incurred. (approx. 14 pages) 

If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Analysis content at the LexisNexis Store.

. . . .

Explore the LEXIS.com Estates, Gifts & Trusts and Elder Law resources

Discover the features and benefits of LexisNexis® Tax Center

For more information about LexisNexis products and solutions connect with us through our corporate site.