iBeneficiaries of trust can face a difficult situation when the trustee of their trust either dies or becomes incapacitated. They may have many questions about the trust, such as what assets are in the trust or should be in the trust, what income and expenses have been incurred, what liabilities exist, what loans to and from the trust exist, what compensation has been paid, etc.? The problem is that the one person that should know all the answers is no longer able to provide them. What should the beneficiary do?
The first step is to analyze what duties a trustee has regarding disclosures to beneficiaries. The Texas Supreme Court has stated that “trustees and executors have a fiduciary duty of full disclosure of all material facts known to them that might affect [a beneficiary’s] rights.” Huie v. DeShazo, 922 S.W.2d 920, 923 (Tex. 1996); see also Valdez v. Hollenbeck, 465 S.W.3d 217, 231 (Tex. 2015). That duty cannot be limited by a trust document as to any beneficiary twenty-five years of age and entitled or permitted to receive trust distributions or who would receive a distribution if the trust terminated. Tex. Prop. Code § 111.0035(c). A strained trustee-beneficiary relationship does not minimize the fiduciary’s duty of full and complete disclosure. Montgomery v. Kennedy, 669 S.W.2d 309, 313 (Tex. 1984).
In addition to the duty of disclosure, a trustee must maintain a complete and accurate accounting of the administration of a trust. Faulkner v. Bost, 137 S.W.3d 254, 258 (Tex. App.—Tyler 2004, no pet.) (citing Shannon v. Frost Nat’l Bank of San Antonio, 533 S.W.2d 389, 393 (Tex. App.—San Antonio 1975, writ ref’d n.r.e.)). Those two duties come together in the statutory duty of a trustee to disclose the complete and accurate accounting of the trust’s administration on demand. Tex. Prop. Code § 113.151(a). That statute expressly permits a beneficiary or an interested person to demand an accounting, which must be provided on or before ninety (90) days following the demand. Tex. Prop. Code §§ 113.151(a)-(b); see also Davis v. Davis, No. 2-00-436-CV, 2003 Tex. App. LEXIS 2667, at *7 (Tex. App.—Fort Worth 2003, no pet.) (mem. op.). An accounting must show five things: 1) all assets that belong to the trust (whether in the trustee’s possession or not); 2) all receipts, disbursements, and other transactions including their source and nature, with receipts of principal and interest shown separately; 3) listing of all property being administered; 4) cash balance on hand and the name and location of the depository where the balance is maintained; and 5) all known liabilities owed by the trust. Tex. Prop. Code § 113.152. The accounting must provide these items from either the period when the trust was created or since the last accounting, whichever is later. Id. at § 113.151(a); Soefje v. Jones, 270 S.W.3d 617, 628 (Tex. App.—San Antonio 2008, no pet.). Any accounting that does not strictly provide all five of these is insufficient, and a court commits reversible error in approving of a deficient accounting. In re Dillard, 98 S.W.3d 386, 397–98 (Tex. App.—Amarillo 2003, pet. denied).
The right to an accounting is critical in that it protects beneficiaries from the inherent risk of inequitable trustee conduct. As one court put it, “[w]ithout an account the beneficiary must be in the dark as to whether there has been a breach of trust and so is prevented as a practical matter from holding the trustee liable for a breach.” Hollenback v. Hanna, 802 S.W.2d 412, 415-16 (Tex. App.—San Antonio 1991, no writ). In line with this reality, a trust document may not limit a trustee’s duty to respond to a demand for an accounting if it is from a beneficiary who: (a) is entitled or permitted to receive a distribution from the trust, or (b) would receive a distribution if the trust terminated at the time of the demand. Tex. Prop. Code § 111.0035(b)(4).
Moreover, a trustee is not allowed to complain that the accounting is for a long period of time. The duty to disclose reflects the information a trustee is duty-bound to maintain as he or she is required to keep records of trust property and his or her actions. Beaty v. Bales, 677 S.W.2d 750, 754 (Tex. App.—San Antonio 1984, writ ref’d n.r.e.). A trustee is under a duty to keep and maintain accurate records of transactions relating to trust property and the administration of the trust. National Cattle Loan Co. v. Ward, 113 Tex. 312, 255 S.W. 160, 164 (Comm’n App. 1923); Faulkner v. Bost, 137 S.W.3d 254, 259 (Tex. App.—Tyler 2004, no pet.); Corpus Christi Bank & Trust v. Roberts, 587 S.W.2d 173, 181 (Tex. App.—Corpus Christi 1979), aff’d, 597 S.W.2d 752 (Tex. 1980) (“One of the primary duties of a trustee is to keep full, accurate and orderly records concerning the status of the trust estate and all acts performed thereunder.”); Shannon v. Frost Nat’l Bank of San Antonio, 533 S.W.2d 389, 393 (Tex. App.—San Antonio 1975, writ ref’d n.r.e.). There is no statute of limitations defense to a request for an accounting. See Estate of Erwin, No. 13-20-00301-CV, 2021 Tex. App. LEXIS 10160 (Tex. App.—Corpus Christi Dec. 29, 2021, no pet.) (“To the extent that Redding relies on the statute of limitations to shield her from rendering an accounting, she provides no case law, and we find none, that hold that the statute of limitations preventing recovery for breaches of fiduciary duty for failure to render an account prevent beneficiaries from seeking to compel an accounting.”).
The Restatement (Third) of Trusts provides a good description for the liability of not maintaining adequate records:
A trustee who fails to keep proper records is liable for any loss or expense resulting from that failure. A trustee’s failure to maintain necessary books and records may also cause a court in reviewing a judicial accounting to resolve doubts against the trustee. These failures by trustees may furnish grounds for reducing or denying compensation, or even for removal, or for charging the trustee with the costs of corrective procedures or of having to conduct otherwise unnecessary accounting proceedings in court.
Restatement (Third) of Trusts § 83.
When a trustee becomes incapacitated or dies, his or her estate representative may have the duty to prepare the accounting during his or her tenure. The leading case in Texas on this issue is Corpus Christi Bank & Trust v. Roberts, 587 S.W.2d 173 (Tex. App.—Corpus Christi 1979), reformed in part on other grounds and aff’d in part, 597 S.W.2d 752 (Tex. 1980). The settlor created a trust for her grandsons, which terminated when they became thirty years old. Id. at 176. After the trust terminated, the beneficiaries requested that the trustee prepare an accounting, but the trustee refused to do so. Id. The beneficiaries filed suit against the trustee requesting a court-ordered accounting and damages. Id. The trustee died prior to trial, and his executor, Corpus Christi Bank and Trust, was then substituted as party defendant. Id. Thereafter, the beneficiaries filed a motion seeking to compel the Bank, on behalf of the trustee, to render a full accounting, which the trial court granted. Id.
The court of appeals affirmed and explained:
One of the primary duties of a trustee is to keep full, accurate and orderly records concerning the status of the trust estate and all acts performed thereunder …. A trustee is charged with the duty of maintaining an accurate account of all the transactions relating to the trust property. He is chargeable with all assets coming into his hands, the disposition for which he cannot account. … In the event the trustee dies prior to the time he has rendered an account, … [his representative] must render the account for the trust beneficiaries.
Id.
The Texas Supreme Court affirmed this aspect of the court of appeals’s opinion. The Court analyzed a suit where, “After the trust [in issue] terminated under its terms [making the trustee a ‘former trustee’] respondents filed suit seeking an accounting and recovery of all sums belonging to the trust estate which had not been properly accounted for by the [former] Trustee.” Corpus Christi Bank & Trust v. Roberts, 597 S.W.2d 752, 573 (Tex. 1980). Despite expressing sympathy for the deceased trustee’s executor, the Texas Supreme Court upheld the requirement for the accounting, stating: “We sympathize with the executor’s difficulty in making a full accounting because of the death of this nonprofessional trustee as well as the death of his accountant before either could give testimony in this case. Nevertheless, this difficulty does not discharge the Trustee’s obligation to make a full accounting of all funds belonging to the trust estate.” Id. at 755.
More recently, an appellate court held that a former trustee’s executor had to prepare an accounting and reversed a trial court’s motion for protection on that issue. See Estate of Erwin, No. 13-20-00301-CV, 2021 Tex. App. LEXIS 10160 (Tex. App.—Corpus Christi 2021, no pet.). Citing to Roberts opinion, the court stated:
Although Redding has not been appointed the successor trustee over C.E.’s testamentary trusts, as independent administrator for Bettye’s estate, Redding assumes the responsibility of rendering an accounting. The trial court erred in granting Redding’s motion for order of protection against producing an accounting of the trusts.
Id. The Roberts court did imply that once a successor trustee is appointed that the successor trustee had the duty to prepare the accounting. Id. However, a successor trustee does not have knowledge of the trust’s transactions and assets, and it has the right to seek an accounting from a former trustee. Tex. Prop. Code § 113.151(b) (interested parties can seek an accounting); Restatement (Third) of Trusts § 83.
In In re Ng, a trial court issued an order requiring the wife of a former trustee to prepare an accounting. No. 09-17-00386-CV, 2017 Tex. App. LEXIS 10129, at *1 (Tex. App.—Beaumont Oct. 27, 2017, no pet.). In that suit, the successor trustee sued the estate of the former trustee and obtained the order. Id. The wife filed a mandamus action, and the successor trustee responded. Id. The court of appeals refused mandamus relief, allowing the trial court’s order requiring the accounting from the former trustee’s estate’s representative to be operative. Id.
Accordingly, the guardian for an incapacitated trustee or the representative of the estate of a deceased trustee may have the duty to prepare an accounting for a beneficiary.
Another issue is who pays for the accounting. The Texas Trust Code is silent on who pays for an accounting. Tex. Prop. Code § 113.151. It does state that “If a beneficiary is successful in the suit to compel a statement…, the court may … award all or part of the costs of court and all of the suing beneficiary’s reasonable and necessary attorney’s fees and costs against the trustee in the trustee’s individual capacity or in the trustee’s capacity as trustee.” Id. So, where a trustee fails to prepare an accounting the court can order the trustee, individually, to pay the fees and costs associated with that litigation.
Moreover, Section 114.008 of the Texas Trust Code provides:
To remedy a breach of trust that has occurred or might occur, the court may: (1) compel the trustee to perform the trustee’s duty or duties; (2) enjoin the trustee from committing a breach of trust; (3) compel the trustee to redress a breach of trust, including compelling the trustee to pay money or to restore property; (4) order a trustee to account; … (8) reduce or deny compensation to the trustee; … or (10) order any other appropriate relief.
Tex. Prop. Code § 114.008(a). This statute provides a court with authority to redress a trustee’s breach of trust (failure to keep and maintain adequate records) by ordering his or her estate to prepare an accounting at the estate’s expense.
Moreover, the Restatement (Third) of Trusts provides also provides for the remedies available where a trustee fails to properly maintain accurate records of all trust transactions:
A trustee who fails to keep proper records is liable for any loss or expense resulting from that failure. A trustee’s failure to maintain necessary books and records may also cause a court in reviewing a judicial accounting to resolve doubts against the trustee. These failures by trustees may furnish grounds for reducing or denying compensation, or even for removal, or for charging the trustee with the costs of corrective procedures or of having to conduct otherwise unnecessary accounting proceedings in court.
Restatement (Third) Of Trusts, § 83a(1). See also, Miller v. Pender, 93 N.H. 1, 34 A.2d 663 (1943) (affirming a trial court’s order requiring a trustee to pay the expense of employing an accountant when the expenditures were made necessary by the inadequacy of the trustee’s records). So, the common law supports a court entering an order requiring a trustee’s estate to prepare an accounting since inception and that the estate representative pay for same.
