This post is part 5 in our 7-part series on the Virginia Supreme Court’s ruling in Hunter v. Hunter (Record No. 190260). Today we focus on the opinion’s discussion of the legal duties in Virginia of a trustee to “inform and report” and provide accountings to a trust beneficiary. You can find parts 1-4 of the series at the following links: Part 1, Part 2, Part 3, and Part 4.
Virginia law contains several sources of law that may apply with respect to a trustee’s duty to provide an accounting or to “inform and report” to a trust beneficiary.
Source #1: the Virginia Code
First, Virginia Code Section 64.2-775 imposes certain duties on trustees to provide certain classifications of beneficiaries with information about the trust. Section (A) provides, in relevant part:
A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.
Additionally, Section (C) provides, in relevant part:
A trustee shall send to the distributees or permissible distributees of trust income or principal, and to other qualified or nonqualified beneficiaries who request it, at least annually and at the termination of the trust, a report of the trust property, liabilities, receipts, and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and, if feasible, their respective market values.
These code provisions contain some detailed language about “qualified beneficiaries”, “beneficiaries”, “distributees”, and “permissible distributees” that can be a bit complicated for a non-attorney. Section 64.2-701 of the Virginia Code contains definitions for several of these terms. Generally speaking (and I’m paraphrasing here for the non-attorney):
- a “beneficiary” is someone who has (or many have) an interest in trust assets (as in, someone who stands to receive trust assets or may stand to receive trust assets), either presently or in the future;
- a “qualified beneficiary” is someone who either is entitled to, or could be entitled to, trust distributions presently, or would be entitled to distributions if all of the present beneficiaries’ interests terminated. In other words, someone who is a present beneficiary or a “first-line remainderman”;
- a “distributee” is someone who is entitled to trust distributions; and
- a “permissible distributee” is someone who is eligible to receive trust distributions.
Please keep in mind that these are just summaries of these terms for the non-attorney, and they each contain more detailed defined terms and nuances under Virginia law.
One issue that may arise is whether the trust settlor (the person who created the trust) is legally permitted to “draft around” these code provisions, such that the language of the trust provides that these duties would not apply to the trustee. In the Hunter case, the trustee tried to argue that a trust settlor could draft around this language. In support of that argument, the trustee cited to Virginia Code Section 64.2-703, which is entitled “default and mandatory rules.” That section states that terms of a trust will control over language in the Virginia Uniform Trust Code except as provided for in the list of certain code sections. The trustee tried to argue that Virginia Code Section 64.2-703 does not specifically list Section 64.2-775 in the list of provisions that can’t be drafted around (and as a result, the obligations under Section 64.2-775 could in fact be drafted around).
In Hunter, the beneficiary argued Virginia Code Section 64.2-703 provides that a trust can’t draft around “the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries,” and that this duty encompasses the duty of a trustee to provide a trust beneficiary with certain information. There is an important North Carolina case (Wilson v. Wilson, 203 N.C. App. 45, 55, 690 S.E.2d 710, 716 (2010)) that held just that.
In Hunter, while the Virginia Supreme Court granted an assignment of error directed to this issue, it did not reach the issue in its ruling, instead reversing the trial court on a different ground. So we presently don’t have definitive clarity on this issue in Virginia.
Potential Source #2: Virginia Common Law
Second, Virginia common law arguably imposes upon a trustee a duty to provide information to a trust beneficiary about the trust. The Virginia Supreme Court ruled in 1997 in the case of Fletcher v. Fletcher, 253 Va. 30 (1997) that a trustee has:
“a duty to the beneficiary to give him upon his request at reasonable times complete and accurate information as to the nature and amount of the trust property, and to permit him or a person duly authorized by him to inspect the subject matter of the trust and the accounts and vouchers and other documents relating to the trust.”
Id. at 35.
In the Hunter case, the trust beneficiary made an alternative argument that the language in the trust that purported to waive a trustee’s duty to inform and report under an older section of the Virginia Code either did not encompass the common law duty to provide information, or that it could not legally do so. In other words, the argument asserted that the language of the trust could not override the common law duty to provide information.
The trustee, on the other hand, argued that Virginia’s adoption of the Uniform Trust Code in 2005 operated to modify the common law on this issue, as expressed in the Fletcher decision handed down in 1997. The beneficiary argued that, to the contrary, the adoption of the Uniform Trust Code did not alter the common law on this issue, given the language of Virginia Code Section 64.2-704 about how the “common law of trusts and principles of equity supplement” the Virginia Uniform Trust Code, and due to the numerous post-2005 cases from the Virginia Supreme Court that cited to the common law of trusts.
In Hunter, while the Virginia Supreme Court granted an assignment of error directed to this issue, it did not reach the issue in its ruling, instead reversing the trial court on a different ground. So we presently don’t have definitive clarity on this issue in Virginia.
Potential Source #3: Virginia Public Policy / Equitable Principles of Law
Third, Virginia public policy and/or equitable principles of law arguably impose upon a trustee a duty to provide information to a trust beneficiary, despite language in a trust that may provide otherwise. While Virginia courts have not clearly ruled on the issue, courts in many other states that have considered the issue have held that a provision in a trust that seeks to exempt a trustee from providing an accounting to trust beneficiaries is void against the public policy of those states. As the Nebraska Supreme Court stated in In re Guardianship & Conservatorship of Sim, 225 Neb. 181, 204 (Neb. 1987): “Any notion of a trust without accountability is a contradiction in terms. If the trustee cannot be called upon to account, the settlor cannot force the trustee to any particular line of conduct with regard to the trust property, or sue for breach of trust.”
In the Hunter case, the trust beneficiary made an alternative argument that the language in the trust that purported to waive a trustee’s duty to inform and report under an older section of the Virginia Code could not be applied as it was inconsistent with Virginia public policy and/or equitable principles of law. The trustee argued that Virginia law had not previously recognized such a principle and should not do so now.
In Hunter, while the Virginia Supreme Court granted an assignment of error directed to this issue too, it likewise did not reach the issue in its ruling, instead reversing the trial court on a different ground. So, like with some of the other issues discussed above, we presently don’t have definitive clarity on this issue in Virginia.
Future of these Issues
It will take future court decisions to provide definitive guidance on these issues. If you’re an attorney who is litigating one or more of these issues, I’d encourage you to take a look at the briefs filed in the Hunter appeal. The briefs contain rather thorough briefing of these issues that may help you in your matter.
Stay tuned for parts 6 and 7 in our 7-part series on the Hunter opinion, as we discuss how the Court touched on further areas of the law that will likely be developed in the years and decades to come.
