February 4, 2013
Authored by: Luke Lantta
There is a surprising but growing split of authority on the extent of fiduciary duties a trustee owes to beneficiaries of a revocable trust other than the settlor. Remarkably, state appellate courts are dealing with these issues for the first time now. We previously took a look at this issue when a Missouri appellate court ruled in In re Stephen M. Gunther Revocable Living Trust that “[b]ecause the trustee owed no duty to the beneficiaries prior to the settlor’s death, they are not entitled to an accounting of trust transactions prior to that date.” In ruling this way, Missouri joined other states, such as Louisiana, in reaching this conclusion. We also looked at an Arizona appellate court apply Michigan law to reach the same conclusion. Seemed to make sense.
But, in late 2012, a closely divided California Supreme Court ruled in In re Estate of Giraldin that after a settlor’s death, remainder beneficiaries of a revocable trust have standing to sue the trustee for breach of fiduciary duty to the settlor occurring while the trust was revocable “to the extent that violation harmed the beneficiaries interests.” In ruling this way, California joined other states, such as Florida, in reaching this conclusion. The gist for these states is that once the settlor dies, the beneficiaries succeed to the settlor’s interest in the trust and a trustee shouldn’t get away with wrongdoing it might have concealed during the settlor’s lifetime.
So, now in In the Matter of Trust #T-1 of Mary Faye Trimble, Judith R. Cunningham, Trustee, Iowa has weighed in for the first time. What side did it come down on?
The Iowa Supreme Court ruled that a trustee’s duty to account is governed by Iowa Code section 633A.3103. Thus, under Iowa law, a settlor alone is entitled to an accounting for the period the trust is revocable, even if the beneficiary’s request for the accounting is made after the trust becomes irrevocable.
What’s surprising here is that courts are only dealing with this issue now for the first time. When the question arose in Missouri in 2011, it was a case of first impression. When it arose in Iowa, it was also a case of first impression. Given the growing split, as other states tackle this issue in the future there isn’t going to be an easy way to predict how it may turn out. Corporate fiduciaries with large trust departments and national footprints in particular are going to need to pay close attention and train their trust officers carefully because, as we are seeing, what’s okay in Iowa or Missouri could land a trustee in trouble in California or Florida.