Court Awards Attorney’s Fees Where Trustees Did Not Keep Proper Records

by Dan Conlisk

A fundamental duty of any trustee is to ensure that beneficiaries are kept apprised of the status of the trust and its administration. Trustees have control over trust assets only to serve trust beneficiaries. When not provided with proper information from their trustee, beneficiaries are unable to ensure that trustees are fulfilling this strict standard. They also are unable to understand and protect their interest in the trust. Recognizing this, in Abbot v. Brennemann, 849 N.W.2d 458 (Neb. 2014), the court recently held that a beneficiary is entitled to an award of attorney’s fees for pursuing a lawsuit to obtain such trust information even where the trustees’ failure to provide it did not cause harm to the trust. While Abbott was decided under Nebraska law, Missouri law, and that of most states, is essentially the same.

As in virtually all trust litigation, the facts of Abbott are complex. The trust at issue began to operate in 1976 and continued at least through the filing of the lawsuit in 2009. The trust’s primary asset was an interest in a ranch. The ranch was sold to a family member (the “purchaser”), who paid the trust for the ranch over time. The purchaser fully had paid for the ranch by 2006. In 2009, the trust’s accountant sent a letter to the trust’s beneficiaries indicating the trust’s asset value had fallen to a level where its continued operation was uneconomical. The accountant recommended termination of the trust.

In response, based on her belief that the trust’s assets should have been greater, a beneficiary sued the trustees. She sought an accounting of the trustees’ actions for the entire existence of the trust (1976 through the filing of the lawsuit in 2009). For most of this period, the trustees had provided only limited tax documents reflecting payments to beneficiaries. They had not supplied more detailed information regarding the trust and its administration. Further, they were unable to provide such information for the whole period because the necessary records had been destroyed.

The court held that the trustees had breached their duty to keep trust beneficiaries “reasonably informed of the trust and its administration.” 849 N.W.2d 401 (emphasis in original). It reasoned that the tax documents provided to beneficiaries (K-1 tax reports) “basically contained only information regarding [beneficiaries’] taxable income from the trust” and were insufficient to meet the trustees’ obligations to inform and report to trust beneficiaries. Id. at 401. Nonetheless, the court did not impose damages on the trustees for this breach. If found, based on the evidence at trial, that the trustees had received payment for the ranch and had managed trust assets appropriately. Id.

But, significantly – even though the trust had suffered no damages – the court held that the beneficiary was entitled to an award of attorney’s fees for bringing the lawsuit. Id. at 403-04. Under § 30-3893 of Nebraska’s Uniform Trust Code (the “UTC,” which is identical to §456.10-1004 of Missouri’s Uniform Trust Code), “[i]n a judicial proceeding involving the administration of a trust, the court, as justice and equity may require, may award costs and expenses, including reasonable attorney’s fees, to any party, to be paid by another party or from the trust that is the subject of the controversy.”

In awarding attorneys’ fees under this provision, the court emphasized that “the trustees clearly breached their duty to inform and report, and did so for decades. They were unable to properly account to [the beneficiary] because they failed to properly maintain trust records.” 849 N.W.2d at 403. As a result, “[the beneficiary] had little choice but to resort to litigation to resolve any doubts about the trust’s administration. Even though the trustees’ conduct ultimately did not harm [the beneficiary] or the trust, that became clear only after litigation—litigation made necessary by the trustees’ breach of their duties.” Id.

As in Abbott, many trust disputes begin with, or are exacerbated by, trustees’ failure to provide information to beneficiaries. Some trustees simply do not understand their obligation to account to beneficiaries. Others may believe, wrongly, that the details of how he or she administers the trust is none of the beneficiaries’ business. Worse yet, the refusal to provide proper information may be intended to hide self-dealing, excessive compensation and/or imprudent investments. Trust law in Missouri, as in most states, clearly entitles beneficiaries to information about their trust. As in Abbott, courts are willing to enforce that right even without a showing of damages to the trust. Simply stated, trust beneficiaries need not be left in the dark about their trust and its administration.