St. Petersburg Estate Planning Lawyer > Resources > Fiduciary Trust Accounting
HOLDING THE TRUSTEE ACCOUNTABLE THE IMPORTANCE OF THE FIDUCIARY TRUST ACCOUNTING
Joseph W. "Jay" Fleece, III © 2019
Legacy Protection Lawyers, LLP
100 2nd Avenue S. Suite 900
jfleece@legacyprotectionlawyers.com
www.legacyprotectionlawyers.com
A trustee is a person with broad discretion with little oversight over someone else's assets. Practically the only time a beneficiary can review what the trustee has done and can challenge those actions is when the trustee provides an accounting to the beneficiary. One of the many duties a trustee has is the duty to inform and account. That fiduciary duty is critically important to ensure that the trustee is properly discharging his or her fiduciary duties in managing the affairs of the trust.
A FIDUCIARY HAS A DUTY TO INFORM AND TO ACCOUNT
While the settlor of a revocable trust is still alive, the trustee's duty to account extend only to the settlor of the trust. A statutory duty to account to qualified beneficiaries does not arise until the trust becomes irrevocable, usually upon the death of the settlor.1
A beneficiary of an irrevocable trust has standing to seek an accounting from the trustee and from that accounting a beneficiary can enforce the trust and hold the trustee accountable. A trustee may also seek an accounting from a co-trustee.2 Also, the settlor's estate has standing to seek an accounting from the trustee of the settlor's trust, even if the estate is not an income or residuary beneficiary, if the trust document provided for the payment of settlor's debts and estate claims and expenses.3 For this very reason the law of trusts has always imposed a duty on the trustee to keep the beneficiary informed as to the administration of the trust and to account to the beneficiary for all actions taken by the trustee. Without a proper accounting disclosing how the trustee has handled the trust affairs, there is little chance of a trustee being held accountable and therefore the trustee's duties could be breached at will with no means of redress. A beneficiary is always entitled to all information as is reasonably necessary to enable the beneficiary to enforce his or her rights under the trust or to prevent a redress a breach of trust.4
The burden of proof is on the fiduciary to show he has performed his duties and the means for such proof is by providing a sufficient and proper accounting.5
The Florida Trust Code explicitly sets forth the trustee's duty to inform and account.6 A trustee must provide an accounting to the beneficiaries annually, when there is a change of the trustee and on the termination of the trust.
A trustee must keep the qualified beneficiaries of the trust reasonably informed of the trust and its administration and provide each qualified beneficiary with an accounting. To obtain an accounting, it is unnecessary that the beneficiary allege that the trustee is in default or that a payment is due.7
The duty to account is so fundamental to the law of trusts that this duty cannot be diminished by the trust itself. The trust instrument may provide that a trustee need not account or only account informally to a beneficiary but according to the Florida Trust Code any such limiting provisions are ineffectual and cannot relieve the trustee of his or her duty to account fully to a qualified beneficiary.8 This is a codification of the common law of trusts. Additionally, a qualified beneficiary can only waive his or her right to an accounting if the waiver is in writing.9
One way to look at the need for an accounting is to consider the trust accounting as the road map which should show all the financial activities of the trustee for the accounting period and is the vehicle used by the beneficiaries to hold the trustee accountable.
A TRUSTEE IS UNDER A DUTY TO KEEP ACCURATE RECORDS
A trustee must maintain clear, complete, and accurate books and records regarding the trust. It is important for the trustee to keep clear and complete records so that the beneficiary can tell whether the trustee has acted with prudence, loyalty, and impartiality and whether the costs of administration have been reasonable and appropriate.10 Courts have held that when one becomes a trustee, he must maintain records of his transactions so complete and accurate that he can show by them his faithfulness to his trust. It is not enough for him to know that he is honestly performing his duty. "Since generally the burden of proof rests upon him to prove his fidelity, he must be able to sustain his position by honest records."11
In Florida the Florida Trust Code explicitly states that a trustee shall keep clear, distinct and accurate records of the administration of the trust.12 If a trustee fails to keep clear, distinct and accurate records, all presumptions are against the trustee and all obscurities and doubts are taken adversely to the trustee.13
A trustee, when he or she assumes the trusteeship, should set up a bookkeeping system to keep track of all receipts, disbursements and transactions. The trustee should also set up a filing system so vouchers, receipts, or other documents evidencing receipts, disbursements, capital transactions can be kept safe and produced when needed to substantiate the accounting.
A trustee who, after being requested to do so, refuses to provide a beneficiary with relevant information about the assets of the trust, how the trust is being administered or other material information being considered by the trustees in the discharge of their duties or who refuses to provide an accounting when required, is in breach of trust and has breached his fiduciary duty owing to the beneficiary.
SUFFICIENCY OF THE ACCOUNTINGS
The Florida Trust Code codifies what should be included in the trust accounting.14 The account of the trustee should show in detail the items expended and show when, to whom and for what purposes the payments were made, so that the beneficiary can make a reasonable test of the accuracy of the accounts. A complete statement of principal and income, and received and expended, present investments, and proposed distributions, payment of expenses, commissions and fees should be included.
Remember that the function of a fiduciary accounting is two-fold. It is to insure the beneficiary is fully informed as to what the trustee has done with the trust assets for the accounting period. And, it is to serve as a vehicle for relieving the trustee from further liability for his past actions as trustee. This is the traditional concept of discharge accounting. Both functions are premised on full disclosure and the price of immunity is disclosure.15
A trustee cannot fulfill his duty to account by merely turning over to the beneficiary the check register of the trust bank account, a list of checks, bank statements, copies of bills and receipts. It is the duty of the trustee to provide a proper and sufficient accounting.16 The accounting cannot leave discrepancies in what was received and disbursed and must match the actual bank records.17 A proper and sufficient fiduciary accounting must make allocations to principal and income. Federal income tax returns are not sufficient because federal laws as to what is taxable income and which expenses are deductible differs from determining income and principal under the Principal and Income Act.18
FAILURE TO KEEP ACCURATE RECORDS
All presumptions are taken against the fiduciary and the burden of proof is on the fiduciary to prove that any expenses were proper disbursements.19
If a trustee fails to keep clear, distinct and accurate accounts, all presumptions are against the trustee, and all obscurities and doubts are to be taken adversely to the trustee.20 A trustee must have records to support the disbursements made from the trust and all doubts and obscurities will be resolved against the trustee.21
When the trustee's claim for reimbursement for expenses is based on his own testimony, which was vague and not supported by vouchers, the claim will be disallowed.22
REMEDIES FOR FAILURE TO ACCOUNT
Failing to account is a breach of fiduciary duty.23 The Florida Trust Code has a specific section on remedies for breach of trust24 Remedies include the removal of the trustee, reduce or deny compensation to the trustee, requiring the trustee to repay money to the trust or by restoring property to the trust by other means or any other relief the court deems appropriate.
If the trustee cannot establish that disbursements, sale of assets or other payment of expenses from the trust were proper, the trustee could be held personally liable for those transactions. A trustee could also be held liable for the value of all property improperly conveyed.25
When a trustee does not maintain any records, the courts have disallowed the expenditures of the trustee and charged those against the trustee as well as the value of property improperly conveyed by the trustee.26
CONSENT, RELEASE OR RATIFICATION: A trustee will not be held liable for a breach of trust if the beneficiaries consented to the transaction, ratified the transaction or released the trustee from liability for the transaction. However, the beneficiaries must know of their rights and all material facts relating to the transaction and the consent, release or ratification cannot be induced by improper conduct of the trustee.27
WAIVER: A beneficiary may waive the trustee's duty to account, but any such waiver must be in writing and the beneficiary may withdraw that waiver as to future periods.28
STATUTE OF LIMITATIONS AND STATUTE OF REPOSE: Once the trustee renders its accounting to the beneficiaries and provided that accounting adequately discloses all matters, then the four-year statute of limitations for breach of fiduciary duty begins to run. If an accounting is not provided to the beneficiaries, or that accounting does not disclose all material matters, then the statute of limitations never runs as to the non-disclosed matters. Claims may subsequently be barred by a statute of repose contained in the Florida Trust Code.29
If a beneficiary has actual knowledge of the matter not adequately disclosed, and it can be proven by clear and convincing evidence that the beneficiary had actual knowledge, or if there has been a repudiation of the trust by the trustee and the beneficiary has actual or constructive notice of the repudiation then the four year statute of limitations will bar that claim.30
Even though an accounting has never been provided to a beneficiary, claims of beneficiaries can be barred in Florida after the later of ten years from when the trust terminates, the trustee resigns or the fiduciary relationship ends provided the beneficiary actually knew of the existence of the trust and the beneficiary's status as a beneficiary during those ten years; twenty years after the date of an act or omission of the trustee provided the beneficiary actually knew of the existence of the trust and the beneficiary's status as a beneficiary during those twenty years or forty years after the termination of the trust, the trustee resigns or the fiduciary relationship ends.
The four-year statute of limitations, nevertheless, does not begin to run until there has been adequate disclosure or until repudiation. That a trustee has not rendered an accounting for many years is only knowledge of a breach of trust and not repudiation of the trust and thus the statute of limitations is not triggered. However, if the beneficiary demands an accounting and the trustee refuses, that may put the beneficiary on notice that the trustee has repudiated the trust, thus triggering the four-year statute of limitations.31 If the beneficiary knew about the trust and was a beneficiary thereunder, statutory laches, however, may impose a four year limitation on suing for an accounting.32
LACHES: Prior to the enactment of the Florida Trust Code, so long as there was the relationship of trustee and beneficiary no length of time would bar the beneficiary of his rights as against the trustee, unless circumstances existed to raise a presumption from lapse of time of an extinguishment of the trust, or unless there has been an open denial or repudiation of the trust brought home to the knowledge of the beneficiary which would require him to act. This is the common law concept of laches.33 but which has now been codified. A recent court decision in Florida has held that statutory laches found at Fla. Stat. 95.11(6) will limit the right to an accounting to no more than four years before filing an action for an accounting against the trustee of an irrevocable trust.34
TRUSTEE RELEASED FROM LIABILITY
Once the trustee renders its accounting to the beneficiaries and provided that accounting adequately discloses all matters, then the four-year statute of limitations for breach of fiduciary duty will bar the claims of the beneficiaries.
As four years is a rather long rime for a trustee to wait to discover if he is off the hook, a trustee can now shorten that time period by providing the beneficiaries with a "limitation notice" at the time of providing the accounting and under the Florida Trust Code.35 This limitation notice advises the beneficiaries that an action by a beneficiary against the trustee for any matter adequately disclosed in the accounting may be barred unless an action is commenced within six months after receipt of the accounting.
However, if a trustee provides a "trust disclosure document" to a beneficiary and that document provides sufficient information so that a beneficiary knows of a claim or reasonably should have inquired into the existence of a claim that too can start the running of the statute of limitations or the shorter six month limitation if accompanied with a "limitation notice".
A trust disclosure statement is defined as a trust accounting "or any other written report of the trustee."36 Thus, even if the trustee does not provide the beneficiaries with a fiduciary accounting but does provide a written report which discloses a potential claim, the statute of limitations begins to run.
Another way to shorten the liability period of the trustee, other than by a written waiver, ratification or release, would be for the trustee to bring an action for the court to review and settle the accounting.37
A trustee who sends out an accounting with a limitation notice cannot be compelled to distribute to beneficiaries within that six-month period unless the beneficiaries sign a release.38
1. FS 736.0603(1); Brundage v. Bank of America, 996 So.2d 877 (Fla. 4DCA 2008); Hilgendorf v. Estate of Coleman, 201 So.3d 1262 (Fla. 4 DCA 2016)
2. Payiasis v Robillard, 171 So. 2d 630 (Fla. 3rd DCA 1965)
3. Carvel v Godley, 939 So. 2d 204 (Fla. 4th DCA 2006)
4. First Union National Bank v. Turney, 824 So.2d 172 (Fla. 1st DCA 2001, rehearing denied, 2002 citing restatement (Second) of Trusts § 173 cmt. c (1959)
5. In Frethey v Durant, 48 NYS 839 (NY Sup; 1897) it was held that "when a fiduciary relation is shown to exist, and property or property interests have been entrusted to an agent or trustee, the burden is thrown upon such agent entrusted to render an account, and to show that all his trust duties have been fully performed, and the manner in which they have been performed. It is assumed that the agent or trustee has means of knowing, and does know, what the principal or cestui que trust, cannot know, and is bound to reveal the entire truth".
6. 736.0813
7. Bogert §963; Green v Brooks 22 P. 849
8. FS 736.0105(2)(s)
9. FS 736.0813(2)
10. Restatement Third §83
11. In the case of Wood v. Honeyman, 169 P.2d 131 (OR 1946) the beneficiaries sued the trustee for an accounting, to recover amounts converted. The trial court removed the trustee and entered a money judgment against him. On appeal, the decision was affirmed. This case held in part that "It must be apparent that when one becomes a trustee and thus undertakes to administer an estate for the benefit of another, he must maintain records of his transactions so complete and accurate that he can show by them his faithfulness to his trust. It is not enough for him to know that he is honestly performing his duty. Since, generally, the burden of proof rests upon him to prove his fidelity, he must be able to sustain his position by honest records."
12. 736.0810
13. Vazquez v. Goodrich, 206 So.2d 54 (Fla. 3d DCA 1968).
14. F.S. 736.08135
15. Van Dusen v Southeast First National Bank of Miami, 478 So. 2d 82 (FL 3rd DCA 1985)
16. Downey Family Trust, 2010 WL 1487970 (AZ App. Div.1, 2010)
17. Trust Estate of Martin v Barry, 124 N.W. 2d 297 (WI 1963)
18. Jacob v. Davis, 738 A.2d 904 (MD sp. 1999)
19. In Beck v. Beck, 383 So.2d 268 (Fla. 3rd DCA 1980), the court found that the personal representative failed to maintain adequate records and that he commingled funds. Due to the lack of adequate records, all presumptions are taken against the personal representative and the burden of proof shifts to the personal representative to prove that any expenses on behalf of the trust were proper disbursements.
20. In Traub v. Traub, 135 So.2d 243 (Fla. 2d DCA 1961)) a suit was brought to impress a constructive trust on certain property. The trial court entered a final decree impressing a constructive trust and ordering an accounting. An accounting was then rendered. Many of the expenditures were disallowed and the value of certain property that had been improperly conveyed was charged to the constructive trustee. The court found that the testimony consisted of estimates, not any records nor recollection of any specific amounts, and was not sufficient to carry the burden of proof cast upon him either as to his expenditures or as to the reasonable necessity of other services. On appeal, the trial court's decision was affirmed.
21. In Bravo v. Sauter, 727 So.2d 1103 (Fla. 4th DCA 1999) an estate beneficiary, among other things challenged certain expenses by the personal representative, who was also the successor trustee of an inter vivos trust and challenged the trustee's accounting. From an adverse ruling the beneficiary appealed. The appellate court reversed on these issues finding that the trustee's accounting did not meet the burden of proving that she had incurred certain miscellaneous expenses for the estate. Further, the Appellate Court found that the trustee's failure to make clear, distinct, and accurate accounts as to her expenditures from the trust's funds required all obscurities and doubts to be resolved against her, and the evidence presented did not meet this standard, since the trustee had nothing to support her testimony that she spent the amounts indicated, nor did she testify that the sums were incurred for trust expenses. Finally, the trustee failed to include income earned by the estate's assets in the accounting.
22. In re Strickler Estate, 47 A.2d 134.
23. McCormick v. Cox, 118 So.3d 980 (Fla. 3d DCA 2013)
24. F.S. 736.1001
25. In Detroit Bank and Trust Company v. Trust Company of Virgin Islands, Ltd., 644 F. Supp 444 the trustee was sued for breach of fiduciary duty. The court found the trustee liable for the full present value of the assets originally placed in the trust plus interest for failing to keep proper records, to render statements of receipts and disbursements upon request and for failing to allow the successor trustee to have access to the trust books and records.
26. Traub v. Traub, 135 So.2d 243, 244 (Fla. 2nd DCA 1961)
28. F.S.736.0813(2)
29. FS 736.1008(6)
30. FS 736.1008(3) (a); Bogert at §964.
31. Cassedy v. Alland Investments Corporation, 982 So. 2d 719 (Fla 1DCA 2008) held that the limitations period did not begin to run because there had been no repudiation of the duty to provide a final accounting. This decision went on to cite Nayee, wherein it was held that summary judgment was precluded by a fact question as to when the beneficiaries of a trust had knowledge of the trustee's repudiation of the trust or the adverse possession of the trust assets. "The Nayee court noted that "[k]nowledge that no accounting had been rendered … is knowledge only of a breach of trust, and not of any repudiation or adverse possession of trust assets"; that is the case here, where Appellant only knew no accounting had been rendered, without knowledge of any repudiation."
32. Corya v. Sanders, 155 So.3d 1279 (Fla. 4DCA 2015).
33. Anderson v. Northrop, 12 So. 318 (Fla. 1892);
Likewise, in Smith v. Reddish, 151 So. 273 (Fla. 1933), the Florida Supreme Court again ruled that "in case of an express trust, as between trustee and cestui que trust the statute of limitations has no application and no length of time will bar the claim prior to repudiation or adverse possession by the trustee and knowledge thereof by the cestui que trustent." See also Rackley v. Mathews, 193 So. 69 (Fla. 1940).
The seminal case in Florida on this issue is the case of Nayee v. Nayee, 705 So.2d 961 (Fla. 5DCA 1998). In that case a beneficiary sued the trustee for an accounting. The lower court ruled on summary judgment that such an action was time barred because of the four year statute of limitations. On appeal the lower court was reversed. The appellate court first noted that an action for an accounting against a trustee was historically governed by the concept of common-law laches, not by statutes of limitations and that laches did not begin to run unless and until the beneficiary had actual knowledge of some unequivocal act in repudiation of the trust or actual knowledge of adverse possession by the trustee. The opinion went on to hold that "… in the case of an express trust, it is not enough that the beneficiary have knowledge of facts which would lead a reasonable person to inquire about a breach of fiduciary duty, although the latter is generally sufficient with respect to other fiduciary relationships. Rather, the beneficiary was required to have actual knowledge of the facts later complained of." The Court went on to cite Sewell v. Sewell Properties 30 So.2d 361 (Fla. 1947) for the proposition that "trust estates are definitely the wards of equity and equity delights in protecting the trust and in requiring the trustee to render true and honest accounting to his cestui. … Where the trustee by fraud or deception, or even by keeping quiet when he should speak and account to his cestui, causes the cestui to be ignorant of the rights of the cestui and of the duties of the trustee, laches will not be imputed to the cestui until discovery of the true condition". 30 So. 2d at 362
34. Corya v. Sanders, 155 So. 3d 1279 (Fla. 4DCA 2015)
36. FS 736.1008 (4)(a)
37. FS 736.0201(4)(d)
38. Merrill Lynch Trust Company v Alzheimer's Lifeliners Assoc. 832 So.2d 948, (Fla. 2nd DCA 2002). After litigation involving a determination of who the proper beneficiaries of the trust were, (the summary judgment instructed the trustee to make distribution in accordance with that determination of beneficiaries) the trustee sent out its accounting and proposed releases and said that it would disburse upon receipt of the releases. The beneficiaries wouldn't sign the releases and then filed a motion for writ of execution and a motion to hold the trustee in contempt for failure to make distribution. The trustee then filed an independent action seeking judicial approval of the accounting. The trial court granted the motion for the writ of execution and found the trustee in contempt of court. The trustee appealed on the grounds that a writ of execution deals with a "money judgment" and that the summary judgment was not clear and definite enough that the trustee was under a duty to make "immediate" distribution. The appellate court agreed with the trustee and reversed. Moreover, the court recognized that Florida law requires a trustee to furnish the beneficiaries with an accounting and after receiving the accounting the beneficiaries have six months to bring an action objecting to the accounting. Since the motion for contempt was filed their motion for contempt only two months after receiving the accounting. "While Merrill Lynch could have distributed the Trust after the completion of the accounting in August 2001, it would not have been prudent to do so for six months without either a consent to the accounting by the Beneficiaries or approval of the accounting by the court."