December 1, 2016
Authored by: Luke Lantta
Trusts are often used to transfer wealth privately without the messiness of a public estate administration. That financial privacy can get blown, however, when trusts become the subjects of very public litigation. In open court and in publicly available filings, dollar figures, assets, and dirty laundry can get thrown about for anyone to see. This is especially true in trust accounting actions, which dig into the financials: income, expenses, assets, investment performance, and so on. In Estate of Fuller, however, the Court of Appeals of Mississippi indicated that a grantor may be able to shroud a trust in greater secrecy through restrictive language in the trust instrument.
The trust at issue was a private trust that provided that the trustee would not “be required to account to any court.” Under Mississippi law, this provision was enforceable because a trust “may expand, restrict, eliminate, or otherwise vary the duties and powers of a trustee, any such other fiduciary, relations among them, and the rights and interests of a beneficiary.” Thus, the trustee could not be compelled to make an accounting to a court. Or could it?
The appellate court, however, recognized that a trustee could not be completely insulated from making an accounting if there was mismanagement. A trustee could be compelled to make an accounting to a court if fraud or mismanagement is alleged. The plaintiff here did not make any allegations of fraud or mismanagement. So, expect now for every petition for accounting in Mississippi to allege fraud or mismanagement.
While the case is interesting in that it gives a road map for getting around restrictive “does not have to account” language in a trust instrument, it also gives us a look at how Mississippi’s appellate court may be willing to interpret the relatively new UTC in Mississippi.