As a general rule, while a trust is revocable, the duties of the trustee are owed exclusively to the settlor, and the beneficiaries of the trust lack standing to challenge the trustee’s actions. See §§736.0603(1) and 736.0813(4), F.S. However, once the trust becomes irrevocable, the beneficiary may sue for breach of a duty that the non-settlor/trustee owed to the settlor/beneficiary which was breached during the lifetime of the settlor and which adversely affected the beneficiary’s interest in the trust. See Brundage v. Bank of America, 996 So. 2d 877 (Fla. 4th DCA 2008); Hilgendorf v. Estate of Coleman, 201 So. 3d 1262 (Fla. 4th DCA 2016); Smith v. Bank of Clearwater, 479 So. 2d 755 (Fla. 2nd DCA 1985); and Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006).
Pursuant to the Florida Trust Code, once the trust becomes irrevocable, the trustee has a duty to keep the qualified beneficiaries of the trust reasonably informed of the trust and its administration, including, but not limited to: (i) providing a trust accounting annually and on termination of the trust or on change of the trustee, and (ii) upon request, providing relevant information about the assets and liabilities of the trust and the particulars relating to its administration. See §736.0813(d) and (e), F.S. This duty may include the period that the trust was revocable. See Tseng v. Tseng (In re Second Amendment & Restatement of Pe Kuang Tseng Trust Agreement), 271 Ore. App. 657; 352 P.3d 74 (Ore. App. 2015) (Where the settlor and the trustee were not the same, the qualified beneficiaries were entitled to be reasonably informed about the administration of the trust and of the material facts necessary to protect their interests, include the period that the trust was revocable, where they sought to ascertain whether the transfer of $1.8 million in funds out of the revocable trust harmed their beneficial interests in the trust by wrongfully depleting trust assets); Estate of Giraldin, 55 Cal.4th 1058 [150 Cal.Rptr.3d 205, 290 P.3d 199 (Cal. 2012), where the California Supreme Court held that when the settlor of a revocable trust appoints, during his lifetime, someone other than himself to act as trustee, once the settlor dies and the trust becomes irrevocable, the remainder beneficiaries have standing to sue the trustee for breaches of fiduciary duty committed during the period of revocability. This standing gives the beneficiaries the right to demand an accounting and information from the trustee regarding trust assets and transactions during the time period before the trust became irrevocable.
But what if the settlor of a revocable trust does not appoint someone other than himself to act as trustee, but instead appoints himself to be the trustee? Do the beneficiaries have the right to demand an accounting and information from the trustee regarding trust assets and transactions during the time period before the trust became irrevocable? This is an unresolved issue in Florida. However, the courts in California, Iowa, and New York have dealt with this issue.
In Babbitt v. Superior Court, 246 Cal.App.4th 1135, 201 Cal.Rptr.3d 353(Cal. App. 2016), the issue, as framed by the court, was whether the term “the internal affairs of the trust” includes an accounting of assets held by the trust while it was revocable where the trustee and the settlor were the same person. Pursuant to the California Probate Code, a trustee or beneficiary of a trust may petition the court concerning the internal affairs of the trust. The term “internal affairs of the trust” includes information relevant to the beneficiary’s interests, information necessary to enforce the beneficiary’s rights, and information that could prevent or redress a breach of trust. The court held the settlor’s death did not give the beneficiaries a right to obtain information about the disposition of assets while the trust was revocable as “internal affairs of the trust”. The court reasoned, in part, that in the absence of any claim that the settlor was incompetent or subject to undue influence, nothing that an accounting of such assets after his death might reveal could support a claim for breach of trust based on actions that occurred before his death.
In In re Trust No. T-1 of Trimble, 826 N.W.2d 474 (Iowa 2013), the court held that a trustee, who owes no accounting to beneficiaries while the trust is revocable, should not face retroactive accounting duties for the same period upon the settlor’s death.
In Matter of Malasky, 290 A.D.2d 631, 736 N.Y.S.2d 151(N.Y. App. Div. 2002), a husband and wife created a joint revocable living trust and named themselves trustees. After the husband died, his children from a prior marriage sought an accounting from their stepmother of the trust assets from the trust’s inception to the date of their father’s death. The court held that, because the settlors also acted as trustees and retained the power to revoke or amend the trust at any time, the stepchildren had no pecuniary interest in the revocable trust until their father’s death, and therefore could not seek an accounting of assets while the trust was revocable.