Qualified Beneficiaries Are Entitled To Trust Accountings…Who Are They?
In Dunley v. Dunley, a beneficiary of a trust challenged an order that he was not entitled to a trust accounting.
James and Alice were married and had 2 children, Edward and Samuel. James created a trust in 1984 (the “Trust”) and he was the sole trustee. Alice transferred real estate (the Venice Property and the Tamiami Property) to the Trust. In June 1990, James signed an amendment and appointed Samuel as trustee. James died in 2014 and the Trust stated that the residue of the Trust was to be distributed to Alice, if living, and, if not, then to Edward and Samuel.Thus, as Alice was living, the Trust assets were to be distributed to her outright.
Alice died in 2018 and between 2014 and 2017 revised her will several times to disinherit Edward. When Alice died, the Venice Property and Tamiami Property were still in the Trust. During the period from 2014 and 2018, Samuel took care of the real estate in the Trust and distributed income to Alice and income from the Venice property to Sam’s wife.
After Alice died, Edward asked for a Trust accounting from Samuel who asserted an affirmative defense that Edward lacked standing to a Trust accounting because he was not a Trust qualified beneficiary. Alice was alive at James death so the Trust assets were to be distributed to her so there was nothing to account to Edward. However, the Trust assets were never actually distributed to Alice.
Edward argued that, at the time James died, Edward was a contingent remainder beneficiary of the Trust (i.e. if Alice had died before James, then Edward would receive 1/2 of the Trust assets). Samuel’s obligations as trustee were not contingent and Samuel acted as trustee after James’ death.
The lower court determined that the Trust terminated at James’ death and that Edward did not have standing as a qualified beneficiary to receive an accounting. The court determined that Alice had not “disclaimed’ the Trust assets and thus, she was entitled to the Trust assets.
The appellate court determined that there was genuine dispute as to the facts of the case regarding the Trust termination and Samuel’s status as trustee. The property appraiser listed the real estate in the name of the Trust AFTER Alice’s death. The court noted that it “is difficult to understand why the Trust retained title and ownership of the properties if the Trust terminated seven years earlier”. Finally “it is difficult to understand why Alice recognized income that undisputedly was distributed not to Alice, but to Samuel’s wife.” The court reversed and remanded for further findings.
ADVICE: It is not clear why the trustee did not terminate the Trust and distribute the funds to Alice at James’ death. An understanding of some sort must have occurred between the trustee and Alice. The trustee must follow the terms of the trust or be held to answer to disgruntled beneficiaries. Tax issues could also be raised. If the assets belonged to Alice, then she should be paying income tax but the distributions of income to Samuel’s wife would then be a gift from Alice to Samuel’s wife. Was this in lieu of a trustee fee on which income taxes would be paid? Without knowing more facts the appellate court was correct in remanding this case. Oh what a tangled web we weave when we practice to deceive…
WORD OF THE WEEK: Standing (locus standi) provides that only persons bringing a lawsuit, or defending one, who have enough cause to “stand” before the court and advocate, since not anyone can go to court for any reason. To have standing, a party must show an “injury in fact” to their own legal interests. Standing is the capacity of a party to bring a lawsuit in court.
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