PROVIDING APPROPRIATE ACCOUNTING

A Trustee for a trust is an important position that has specific duties and obligations. As an individual or institution entrusted with the responsibility to execute the wishes of the grantor who created the trust, the Trustee must be mindful of the legal and financial rules to follow.

Providing an Accounting

As an example, many Trustees of trusts sited in Texas may not be aware that in certain circumstances they have a strict duty to make accountings to the beneficiaries of the Trust. Under applicable Texas law, a Trustee's failure to provide such an accounting can, upon suit, result in the Trustee's removal. Should the Trustee not make such an accounting, the Trustee may be responsible for any attorney's fees incurred by a beneficiary in obtaining the information.

A Trustee who is challenged on the accounting issue may say, "But I provided them the tax returns. I gave them the bank statements." While such documentation may be useful to a beneficiary, it does not rise to the level of "accounting" under the Texas Trust Code. "Accounting" is a term of art. A Trustee has a duty to provide "full and complete disclosure" to the beneficiaries of the trust. Such duty to disclose may in some instances be determined, at least in part, by the specific language of the trust instrument. That stated, a beneficiary's right to receive a statutory accounting cannot be entirely extinguished, regardless of the intent of the grantor. In many instances, the duty to make full disclosure includes the duty to account. If a Trustee has been requested by a beneficiary to provide an accounting, it is always best to consult an attorney to ascertain what is required.

Demanding an Accounting

Who can demand an accounting, or to whom does the Trustee owe a duty to make full disclosure? In some cases, Trustees find that a "contingent beneficiary" (often children of a primary beneficiary who may not receive any distributions until the death of the primary beneficiary,) has requested an accounting. Under these circumstances, must the Trustee provide an accounting? It is our opinion that the Trustee should provide an accounting, because a contingent beneficiary does have legally protected rights. Also, Texas law allows "interested persons" to file suit to compel an accounting, and whether or not a contingent beneficiary is a "beneficiary" for purposes of the statute, they are likely "interested persons." A Trustee who does not make full disclosure under these circumstances runs the risk of being removed, as well as being subject to other sanctions.

The attorneys at McCulloch & Associates are familiar with the "rules of the road" for the Trustee and can assist with making the accounting component of the Trustees duties appropriate and meaningful to the beneficiaries and all those involved.