Breach of Fiduciary Duty: Does “Any” Mean “All” to a Successor Trustee?
06/20/2018 News and Film, Appraisal Services, Trusts and Estates
By Kurt R. Mattson It isn 't uncommon for a disgruntled or untrusting beneficiary to bring an action for accounting and alleged a breach of fiduciary duty against a trustee. Whether a successor trustee had a duty to make an accounting was one of the issues in a recent Utah appellate case.Generally, a trustee owes a “duty to account.” This includes maintaining trust records, informing interested parties of transactions, and disbursing the required amounts to beneficiaries.Judge David Mortensen of the Utah Court of Appeals wrote in his opinion that summary judgment was improperly granted to the attorney on a claim related to the advice he gave the trustee not to provide an accounting where the trust instrument—when it was properly interpreted—required an accounting.In 1971, the grandparents created the trust to help ensure they were properly cared for during their lifetimes. Upon the death of either settlor, the trust was to become irrevocable. The grandfather died in 1996. The grandparents named their four children remainder beneficiaries of the Trust. Two of those children died in a car accident, and one later suffered an unrelated injury that left her disabled and unable to manage her affairs. The latter had five children who were also involved in the case. The only remaining child capable of doing so (the aunt) served as co-trustee with the grandmother following the deaths of the other children. She became the sole trustee in 2005 when the grandmother died.After the trust beneficiary grandchildren asked for financial information in 2006, the attorney advised the aunt, as successor trustee, that she had a duty to provide a trust accounting as of the date of her mother, the trust owner 's death—but not for the period prior to her death. The attorney then sent a letter to all the beneficiaries of the trust and mother's estate, saying that any "request of past accountings is silly."The grandchildren sued the successor trustee and the attorney. They sought to have their aunt removed as trustee and to obtain an accounting. They also asserted claims against the attorney for legal malpractice, breach of fiduciary duty, and aiding and abetting their aunt in her breach of fiduciary duty.The district court ordered the accounting; replaced the aunt as trustee with a third-party successor trustee and found that the aunt had breached her fiduciary duty to provide an accounting of the trust for the period prior to the grandmother 's death when she had been co-trustee. The court dismissed the claims against the attorney for legal malpractice and breach of fiduciary duty because he did not have an attorney-client relationship with the beneficiaries and owed them no duty.The district court determined that “[a] clear reading of the [Trust] leads the court to the conclusion that the requested accounting was not required." Thus, in the district court's view, the attorney was entitled to judgment as a matter of law on this issue.Two provisions of the Trust instrument are central to the case as it relates to the grandchildren's request for an accounting. One provision directs, "Accounting shall be made only to the oldest adult beneficiary of any trust hereunder at such time as said beneficiary shall demand." The request for accounting was made, but the aunt, relying on the attorney 's interpretation of another trust provision, took the position that she need not provide an accounting from 1999, when she became the grandmother 's co-trustee, to when she died. That provision read, "Any successor Trustee hereunder shall be liable and responsible only for such assets as are actually delivered to him, without obligation to make accounting for all assets originally in the hands of a predecessor Trustee." The Court of appeals said that it couldn 't read this provision to support the attorney's, or the district court's, interpretation and resulting conclusion that the requested accounting wasn 't required.Under the relevant trust provisions, Judge Mortensen found that the successor trustee was required to provide the requested accounting. Thus, the dispute was over the trust's direction that she "be liable and responsible only for such assets as are actually delivered to" her and that she didn 't have an "obligation to make accounting for all assets originally in the hands of a predecessor Trustee."The assets "actually delivered to" the successor trustee were all assets belonging to the trust at the time she became co-trustee. And, under the terms of the trust instrument, she was "liable and responsible" only for those assets. The Court of Appeals said that she had no liability or responsibility for assets that had once been part of the trust and no longer were. In other words, the successor trustee was responsible for all property belonging to the trust beginning on the date when she became the co-trustee.The question then was whether the aunt was required to provide an accounting for trust assets she received and was responsible for dating back to 1999 or whether her obligation to provide an accounting arose only after the grandmother died in 2005. Said another way, the Court had to determine whether the trust instrument allowed her to administer trust assets without requiring her to account for them.The trust instrument itself established that the aunt had no "obligation to make accounting for all assets originally in the hands of a predecessor Trustee." (emphasis by the court.) Read in context with the rest of the trust provision where that phrase appeared, Judge Mortensen said it was clear that the aunt had an obligation to account only for trust assets that were actually delivered to her—for which she was liable and responsible. No one could require her to account for the entirety of assets held by her predecessors.Judge Mortensen said the determination was based on the provision's use of the word "all." The word can mean "the whole amount or quantity" or it can mean "every member or individual component," according to Webster's Dictionary. The proper interpretation of the trust instrument required the Court to decide whether the word "all" meant the entirety or "whole amount" of "assets originally in the hands of a predecessor Trustee" or any one of the individual "assets originally in the hands of a predecessor Trustee."Given the context in which the word "all" appeared in the relevant trust provision, the Court of Appeals held that it didn 't mean "any." Rather, it referenced the entirety of trust assets held by a predecessor trustee—the comprehensive body of assets that the aunt's predecessor originally had in his hands. It didn 't mean each asset in the predecessor's hands, considered individually. Thus, if a particular asset were delivered to the aunt as trustee, becoming an asset for which she was responsible, she would be expected to account for that asset. What she wasn 't expected to do was look back at that comprehensive body of assets that existed before she succeeded as trustee and account for it. To conclude otherwise would yield an illogical result, Judge Mortensen said. It would allow any successor trustee to administer trust assets without ever needing to account for that administration, so long as the assets being used became part of the trust before the successor trustee assumed her role.Because the grandchildren in the case sought an accounting from the time when the successor trustee acted as trustee, they were entitled to an accounting for that period. As successor trustee at that time, she had an obligation to provide an accounting for all trust assets that had been delivered to her. The attorney misinterpreted the trust provision and erroneously advised the successor trustee not to provide the requested accounting. The district court likewise misinterpreted the trust terms. As a result, the Court of Appeals rejected the district court's determination "that the requested accounting was not required" and reversed its grant of summary judgment in the attorney 's favor. Cattani v. Drake, 2018 UT App 77 *, 863 Utah Adv. Rep. 15 (April 26, 2018).About the AuthorKurt R. Mattson is the President of Union Legal Research. He is the former Director of Library Services and Continuing Education at Lionel Sawyer & Collins in Las Vegas. Prior to this, he worked at BNA and other legal publishers, spending a substantial portion of his career working for Thomson Reuters. He serves as a consultant for several businesses, law firms, and marketing companies.Kurt received his JD from William Mitchell College of Law and his Masters of Law (LLM) from George Washington University. He received his Masters of Library Information Science (MLIS) from Wayne State University.Kurt is the editor of Lexis ' BSA/AML Update, co-author of A.S. Pratt 's Mortgage Procedure Guide to Federal and State Compliance, and author of Fair Debt Collection Practices: Federal and State Law and Regulation. He is also a contributing author of Brady on Bank Checks. Kurt is also a contributor to other business and legal publications.Want more Trusts & Estates and Appraisal news? Sign up for Freeman's monthly Business Bulletin and never miss a beat.