Under Virginia law, when a party is considering filing a lawsuit, the most important thing to consider is whether or not the cause of action that is the basis for the lawsuit is time-barred. This is determined by the applicable statute of limitations, which for most causes of action can be found in Chapter 4 of Title 8.01 – Civil Remedies and Procedures.
In most cases, the statute of limitations on a cause of action will begin to accrue at the time the injury occurs. However, in some cases, like fraud, the statute of limitations begins to accrue when the fraud is discovered or could have been discovered after reasonable inquiry. Understanding your cause of action’s applicable statute of limitations is extremely important, as filing your lawsuit after the applicable statute of limitations runs can end your lawsuit before it even begins. This issue is particularly important in the context of trust and estate litigation. Below, we examine Virginia Code § 64.2-796 and its impact on the ability of trust beneficiaries to bring legal actions against trustees.
Virginia Code Section 64.2-796 plays a crucial role in the management and distribution of trusts. However, this section includes a caveat that a lot of beneficiaries may not know of and/or do not understand. Subsection (A) states:
“A beneficiary may not commence a proceeding against a trustee for breach of trust more than one year after the date the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.”
Under Subsection (C), if Subsection (A) does not apply, a beneficiary of a trust has five years to bring a lawsuit for breach of trust against a trustee, after either (1) the removal, resignation, or death of the trustee; (2) the termination of the beneficiary’s interest in the trust; or (3) the termination of the trust.
Additionally, Subsection (B) provides:
“A report adequately discloses the existence of a potential claim for breach of trust if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.”
These subsections provide a lot of information that a beneficiary may not initially understand because the wording of these subsections is complicated. Subsection (A) essentially means that as a beneficiary, you will be barred from bringing a breach of trust lawsuit against a trustee if it has been more than one year since you received a report from the trustee that adequately disclosed the existence of a potential claim for breach of trust and included the time allowed for the beneficiary to file a breach of trust lawsuit. Notably, the trustee is not obligated to specifically identify or explain the potential claims to the beneficiary, even though Subsection (A) may appear to suggest otherwise. This makes it essential to understand the role and implications of Subsection (B).
For Subsection (A) to apply, the report, as outlined in Subsection (B), must adequately disclose the existence of potential claims for a breach of trust lawsuit. This means that when the beneficiary receives the report from the trustee, the report must include enough information relating to the trust’s assets that the beneficiary is able to either know of a potential claim or have the information available to them to inquire into the existence of a potential claim. Even without this specific provision, trustees are generally required to provide beneficiaries with annual reports, typically in the form of trust accountings. By providing a report in the form of an accounting, trustees create a clear record of the trust’s assets, which is essential for the proper distribution to beneficiaries and for settling any debts or taxes owed by the trust.
What a lot of beneficiaries do not realize is that these accountings can act as the “report” that is specified in Subsection (B) and will oftentimes include the basis for a breach of trust lawsuit (if any). For example, the accounting could be missing certain assets that you believe should have been included in the trust’s accounting, it could show disbursements to improper parties, or it could show improper investments. These are just a few examples of what could be considered an adequate disclosure of potential claims, even though the trustee did not directly inform the beneficiary of such claims.
However, as discussed above, the report must also be accompanied by a timeline for when the beneficiary can commence a lawsuit. Therefore, if you are a beneficiary of a trust, and you are sent a large stack of paperwork from the trustee or a representative on the trustee’s behalf, it is imperative that you review every document you receive to see if the trustee included a statement regarding the timeline for commencing a lawsuit for breach of trust, as that could be your warning that the trustee is trying to accelerate the statute of limitations pursuant to Virginia Code Section 64.2-796(A).
Learn more about Gordon Rees Scully Mansukhani’s Estate & Trust Litigation practice.