October 22, 2013
Authored by: Luke Lantta
In many ways, Georgia’s 2010 Trust Code is like no other. The drafters of the Trust Code looked at the 1991 Georgia Trust Act, Uniform Trust Code, and trust laws in other jurisdictions to arrive at a code that is in some ways similar to that of other states but in other ways uniquely Georgia. Within the last year or two, questions arising under the 2010 Trust Code have started to make their way into decisions of the Georgia Court of Appeals and, more recently, into the decisions of the Georgia Supreme Court.
In the most recent of these decisions, Hasty v. Castleberry (a counterpart of which we looked at here), the Georgia Supreme Court looked at one of the concepts Georgia borrowed from the UTC (shortened statute of limitations after a “report”) and one of the uniquely Georgia concepts (diversification).
William G. Hasty, Sr. died leaving most of his assets in a marital trust for the lifetime support of his wife, Hazel Wyatt Hasty, and the remainder to his children Dixie, William, and Joan. William was named the executor of the estate and trustee of the trust. A large portion of the marital trust included almost 85,000 shares of Wachovia Bank common stock, the value of which decreased precipitously over the time that William served as trustee. At one point, the court noted that there was a 90% concentration of Wachovia stock.
While the opinion contains some interesting issues, such as William’s unauthorized gift of trust assets to Reinhardt University, these aspects of the case – while interesting – don’t seem to have broken new ground. For example, we know that a trustee cannot take actions that are not authorized by the trust instrument. We instead want to look at statutes of limitation and diversification.
Statute of Limitations for Actions Against Trustees
William claimed that Joan failed to file her claim within the applicable statute of limitations. Similar to the UTC, Georgia has a shortened statute of limitations where the beneficiary bringing a breach of trust claim has received a written report that adequately discloses the existence of the claim. In Georgia, the shortened statute of limitations is two years (note, however, that the UTC’s shortened statute of limitations is one year). Otherwise, the statute of limitations is six years.
William contended that the two-year statute of limitations was triggered on Joan’s claim that he improperly made a loan when he showed Joan a letter he received from his accountant. For the first time, the Georgia Supreme Court weighed in on what, exactly, is a “report” that triggers the shortened period. It decided that the letter from the accountant was not a sufficient report because it was “simply a form of general correspondence that did not contain the type of detailed information contemplated by the Legislature for it to qualify as a ‘report’ . . . .”
So what is a sufficient report? The Court took the term “report” and looked at other parts of the Trust Code that refer to a “report.” In doing so, they focused on the statutory duty for the trustee to provide reports and accounts. Under this statute, upon a reasonable request by a qualified beneficiary, “the trustee shall provide the qualified beneficiary with a report of information, to the extent relevant to that beneficiary’s interest, about the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particulars relating to the administration of the trust, including the trust provisions that describe or affect such beneficiary’s interest.”
Because the Court never lets us know what the accountant letter stated, we do not know just how high or low the Court has set the threshold to trigger the two-year statute of limitations.
Diversification of Trust Assets
It has been written that “[t]he question of whether the statute should require trustees to diversify the trust investments has been highly debated.” That’s probably an understatement. We’re not going to set it out in full here, but Georgia’s concentration and diversification statute (O.C.G.A. § 53-12-341) is a unique animal. The trial court here determined that whether William breached his fiduciary duty by failing to diversify the trust assets and retaining a nearly 90% concentration of Wachovia stock was a jury issue. The Georgia Supreme Court agreed. Question whether that would have been the case in other jurisdictions with different diversification statutes.