Duty to Account and Inform

• Author: Browne C. Lewis
• Pages: 323-368

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Chapter 12 - Duty to Account and

Inform

As the previous chapters have indicated, the trustee has a lot of responsibilities.

Some of the trustee’s duties are mandated by law; others are imposed by the provisions of

the trust instrument. In order for the beneficiary to hold the trustee accountable, the

beneficiary must have information about what the trustee is required to do and what the

trustee actually does. Thus, the trustee has a duty to account and to inform. These duties are

related because the purpose of the accounting procedure is to provide the court and the

beneficiary with information. The accounting may be mandated by the trust instrument or

the law or requested by a beneficiary who suspects that the trustee has violated the terms of

the trusts instrument.

The accounting protects the interests of the trustee and the beneficiary. After the

trustee makes an accounting that is accepted by the beneficiary and the court, the trustee is

protected from liability to the extent that the factual basis for a later claim by the beneficiary

was disclosed in the accounting and accepted by the beneficiary. Consider the following

example. A leaves his house to B in trust for the benefit of C. The house declines in value

after B assumes his role as trustee. At an accounting, B informs C that since the house is

depreciating, B has decided to reduce the insurance coverage on it. C fails to object to B’s

accounting and the court approves it. If the trust suffers a loss because of the lack of full

insurance coverage, C might be inclined to sue B for breaching his duty of prudence.

However, A may be relieved of liability because the accounting was accepted by the

beneficiary and approved by the court. Nonetheless, an accounting will not protect a trustee

who misrepresents vital facts. The beneficiary’s consent to the accounting must be informed.

Thus, a beneficiary who lacks the capacity to understand the information presented at the

accounting will not be prevented from later challenging the court’s approval of the

accounting.

When a beneficiary requests an accounting she is usually seeking some type of

damages. Therefore, this chapter includes a brief discussion of the remedies available to the

beneficiary when the trustee is found to have breached one or more of his duties.

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12.1 To Account

Raak v. Raak

, 428 N.W.2d 778

PER CURIAM.

Respondents, former trustees of Berdena Raak's revocable trust, appeal as of right

from an order of the probate court requiring them to render an accounting as to trust

property. We affirm.

Petitioner Berdena Raak is a widow in her late seventies who lives by herself.

Respondents are Berdena's children. Throughout their marriage, Berdena's husband was the

exclusive manager of the couple's assets, so that Berdena had no experience in financial

management. Berdena was the sole beneficiary under their joint will. Shortly after her

husband's death in 1981, respondents began to assume control over Berdena's assets which

apparently totaled approximately $104,591.82, exclusive of her home and antique doll

collection.

In September, 1983, Berdena and respondents entered into a written trust agreement

appointing respondents as trustees. Pursuant to the terms of the declaration of trust,

Berdena conveyed to herself and respondents as joint tenants with rights of survivorship her

real property, personal property, and intangible personal property. Along with the trust

agreement, Berdena also granted respondents a durable power of attorney.

In September, 1984 Berdena, revoked the power of attorney. In November, 1984,

she petitioned the probate court for the appointment of a conservator and revoked the

declaration of trust. The probate court granted the petition and named petitioner FMB-First

Michigan Bank conservator. Respondents subsequently delivered to the conservator

$32,579.12 in assets.

On September 9, 1985, Berdena and FMB filed a petition for an order to show cause

in the probate court alleging that, as trustees, respondents converted items of personal

property, failed to make payments on a promissory note to Berdena, used the power of

attorney to transfer title to Berdena's assets without her knowledge and consent, and refused

to reconvey her real and personal property. The petition requested that the court order

respondents to render an accounting of the property while it was held in trust in order to

determine the whereabouts of the $70,000 in missing assets.

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On March 13, 1986, the probate court granted petitioners' motion for partial

summary disposition and ordered respondents to reconvey to Berdena her real property. The

court further ordered respondent Robert Raak to prepare an accounting of all Berdena's

assets over which he had obtained control or title pursuant to the durable power of attorney.

The court, however, reserved the question of whether respondents were under a duty to

render an accounting of the trust property. This was because respondents claimed that under

paragraph 7 of the declaration of trust they had no obligation to account for the trust assets.

Paragraph 7 provided:

“7. ACCOUNTING. So long as [Berdena Raak] lives and is not disabled,

Trustees need keep no accounts because of the control which she has

retained. However, in the event of the disability or death of Berdena Raak,

Trustees shall keep an account of receipts and disbursements and of property

on hand at the end of the accounting period and shall deliver copies to the

beneficiaries or, if one is a minor, to one with whom he makes his home.”

In the meantime, Berdena decided that she no longer wanted an accounting of her

assets, that it did not matter where her $70,000 went, and that she no longer required a

conservator. The court subsequently refused to dismiss the conservatorship, ruling: “I can't

think of a situation that requires one more than this one.”

Following a hearing on the issue whether respondents had an obligation to render an

accounting, the court ruled that respondents were legally obligated to do so. On

respondents' motion for reconsideration, the court stated:

“This Court's appointing of a fiduciary, a [sic] official fiduciary, a

conservator, I think places that fiduciary in the shoes of Berdena Raak, and I

think that even this provision of the trust would allow that conservator to ask

for an accounting. I can't conceive of a situation where someone would make

someone a trustee and not be able to change their minds on an account

situation. I think that's, as I've said before, the responsibility of a fiduciary.

To hold otherwise would mean that Berdena Raak five years down the road

could wonder what happened to her money and have no ability to get

answers to those questions. That's not the way I construe that provision of

the Trust Document.