October 21, 2011
Authored by: Luke Lantta
When trust beneficiaries sue their trustee, there will almost invariably be a demand for an accounting. Even if the trust instrument relieves a trustee from having to provide regular accountings, the trustee is almost always going to be required to provide some accounting to the beneficiaries.
Trust litigation often deteriorates into fights over the depth of the accounting. How far back must the accounting go? What level of detail is required? Must the trustee provide receipts for every expense? In the case of a trust where the grantor is also a beneficiary during his or her lifetime, one of the most common disputes is whether the trustee must provide the remaindermen or successor income beneficiaries with an accounting for that period of time preceding the grantor’s death.
In In re Stephen M. Gunther Revocable Living Trust, the Missouri Court of Appeals decided that, with respect to a revocable trust, the answer to that question is “no.” Stephen M. Gunther established the Stephen M. Gunther Revocable Living Trust. The settlor named J. Barry Gunther as the initial trustee. Nine years later, the settlor amended the trust, named himself as trustee, and changed the residuary beneficiary upon his death to his then-living descendants, subject to a contingent trust for any beneficiaries under the age of 25. The settlor died three years later, leaving his wife, Angel Gunther, and his two minor children, Alton Gunther and Adam Gunther.
A year after the settlor’s death, Alton and Adam, through Angel as their next friend, filed a petition for accounting, enforcement of trust, and removal of trustee. In particular, they sought an accounting of the trust from its inception until its amendment and from the settlor’s death until the present.
The trial court entered summary judgment against the beneficiaries on the grounds that the trustee owed no duty to the beneficiaries prior to the settlor’s death, and, thus, they were not entitled to an accounting of trust transactions prior to that date. The Missouri Court of Appeals agreed.
The court of appeals first turned to the Missouri Trust Code. Specifically, the court looked at Section 456.8-813.1(1). Under this section of the Missouri Trust Code, a trustee is required to keep the qualified beneficiaries reasonably informed about the trust’s administration and of the material facts necessary for the beneficiaries to protect their interests.
Certainly, the trustee was required to provide an accounting from the date of the settlor’s death forward, but the question of whether a trustee was required to provide an accounting reaching back to the trust’s inception was a case of first impression.
The reason why the beneficiaries were not entitled to an accounting for that period of time before the settlor’s death was the nature of the trust. Because the trust was revocable, the settlor had the capacity to revoke the rights of the beneficiaries at any time prior to his death. Thus, the duties of the trustee were owed, during that time, exclusively to the settlor. The suggestion, then, is that if this had been an irrevocable trust instead of a revocable trust, the trustee’s duty to provide an accounting to the remaindermen may have been different.