iA recent bill has been submitted that would provide a trustee release relief for transactions described in an accounting where a beneficiary fails to timely object to the accounting and there is no fraud, intentional misrepresentation, or material omission. The bill provides:
Sec. 113.153. BENEFICIARY’S APPROVAL OF ACCOUNTING.
(a) This section does not apply to a trust that is under judicial supervision.
(b) If a beneficiary does not object to a trustee’s accounting before the 180th day after the date a copy of the accounting has been delivered to the last known address of the beneficiary: (1) the beneficiary is considered to have approved the accounting; and (2) absent fraud, intentional misrepresentation, or material omission, the trustee is released from liability relating to all matters in the accounting.
If passed, the bill would take effect on September 1, 2021 and would apply to accountings delivered on or after the effective date. This provision is similar to the Uniform Trust Code, which provides: “A beneficiary may not commence a proceeding against a trustee for breach of trust more than one year after the date the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding. A report adequately discloses the existence of a potential claim for breach of trust if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.” Uniform Trust Code Sec. 1005.
This statute does not address whether a trustee can voluntarily provide accountings and trigger the release relief in this statute or whether the proposed statute would only apply when a beneficiary demands an accounting under the Texas Trust Code. For example, if routine account statements provide the information required by the Trust Code to be an accounting, does this trigger a beneficiary’s duty to review and object? It also does not address whether the release relief in the statute would apply when the beneficiary does not receive the accounting (lost in mail) or is incompetent to understand it (cannot read, cannot read English, lost sight, is mentally incompetent, etc.).
If passed, there will likely be constitutional challenges to this statute. For example, there are public policy and constitutional limitations on lowering the statute of limitations in Texas (due process, due course of law, open courts, etc.). However, this proposed statute is similar to another Texas Statute that has passed constitutional muster. Texas Business and Commerce Code Section 4.406 creates a statute of repose and addresses a bank customer’s duty to discover and report unauthorized signatures. If a bank sends or makes available a statement of account, “the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized.” Tex. Bus. & Comm. Code §4.406(c). Further, “If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.” Id. If the customer fails to comply with these duties, then the customer is precluded from asserting against the bank that: 1) the customer’s signature or any alteration on the item if the bank also proves that it suffered a loss by reason of the failure, and 2) the customer’s unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank. Id. at §4.406(d). See also Compass Bank v. Calleja-Ahedo, 569 S.W.3d 104 (Tex. 2018).
