December 23, 2014
Authored by: Luke Lantta
Unless prohibited by law or under the governing instrument (a provision which itself may be prohibited by law depending on the jurisdiction), trustees should consider sending out account statements to anyone who does or who may have standing to sue you as trustee because it may start statutes of limitation running on possible claims and put the recipient on inquiry notice of potential claims. But, as the United States Court of Appeals for the Sixth Circuit recognized in Smith v. J.J.B. Hilliard (unpublished), the road runs both ways for trustees. If a trustee delegates investment authority to an investment advisor or counselor, the trustee better pay attention to the account statements being sent back to it.
In Smith, a co-trustee sued her investment counselor and broker dealer, alleging that its agent made incompetent investments ten years earlier that cost the trusts over half their value. The trustee complained of investment allocations in annuities, but the applications for the annuities clearly set out the asset allocations. Furthermore, the trustee received monthly statements for one account and quarterly statements for another account that reflected the investments that ultimately caused the heavy losses to the trusts. The information in the applications and account statements placed the trustee on inquiry notice, which required her to make further inquiries if she had any concerns. She did not make further inquiry and, instead, filed suit well beyond the applicable Tennessee statutes of limitations for her claims. Thus, the trustee’s claims against the investment counselor and broker dealer were properly dismissed as time barred.
So, trustees: keep sending out those accounts statements and reading those that are issued to you.