Many trusts documents waive the trustee’s duty to account and to report to the beneficiaries. This is allowed by law subject, however, to a court nonetheless requiring such an accounting when necessary to protect the beneficiaries.
The duty to provide accountings is often waived by the trust’s creator because the creator wants to reduce trust administration costs associated with preparing the accounting.
Trust beneficiaries, however, need to know the particulars relating to the trust assets and trustee’s use of them in order to protect themselves against the trustee’s breach of trust.
Recently enacted legislation now reinforces the trustee’s duty under California Probate Code section 16060, “… to keep the beneficiaries of the trust reasonably informed of the trust and its administration,” which cannot be waived, unlike the trustee’s statutory duty to furnish an accounting under Probate Code section 16062 which may be waived.
The question becomes then, what information must a trustee still provide pursuant to section 16060?
That issue was presented to the California Supreme Court in Salter v Lerner (2009).
Unfortunately, the court’s decision does not provide clear guidance, except to say, that, “[t]he trustee is under a duty to communicate to the beneficiary information that is reasonably necessary to enable the beneficiary to enforce the beneficiary's rights under the trust or prevent or redress a breach of trust.”
The Salter decision went on to say that whether the information requested by a beneficiary is information that must be provided under section 16060 or may be withheld by a trustee of a trust that waives an accounting would have to be decided by a trial court in the course of litigation.
As newly amended, the law now provides that a trust becomes irrevocable, a trustee must provide the, “requested information about the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particulars to the beneficiary relating to the administration of the trust relevant to the beneficiary's interest, including the terms of the trust.”
Before the foregoing addition of the worded “requested” the statute did not require that trustee to provide requested information relevant to the beneficiary’s interest it only required the trustee to provide information.
While the law has strengthened in favor of disclosing information to the beneficiary, there is still room for improvement.
A trustee might still contend that the requested information is the sort of information that would amount to an accounting and is not therefore required to be provided if the trust waives an accounting.
Under the Salter case decision, the outcome of such a dispute would need to be determined by a court during litigation.
Lastly, while accountings can be burdensome and costly for a trustee to prepare, they are often prepared by trustees of trusts that waive the accounting in order to achieve finality as to issues that would otherwise remain open sources of future litigation.
That is, a trustee who relies on a trust waiver of an accounting and does not prepare an accounting will continue to be subject to legal actions by the beneficiaries indefinitely.
By providing an accounting the trustee can limit the three-year statute of limitations period, and even reduce that down to 180 days by petitioning the court for an order approving the accounting.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.
Follow Lake County News on Twitter at http://twitter.com/LakeCoNews , on Facebook at http://www.facebook.com/pages/Lake-County-News/143156775604?ref=mf and on YouTube at http://www.youtube.com/user/LakeCoNews .
