July 22, 2019

Indiana Court of Appeals Opinion Upholds the Importance of Accountings in Trust Administration

Earlier this month, the Indiana Court of Appeals decided In Re: The Scott David Hurwich 1986 Irrevocable Trust. The case – which involved three siblings, Scott, Jeff and Stacey – arose after Scott and Jeff began to question some of Stacey’s actions as trustee of their respective trusts – specifically, her handling of the trusts’ joint ownership of multiple parcels of real property. Shortly after the siblings executed a mediated settlement agreement and partitioned the properties, Scott sued Stacey, as trustee of his trust, alleging she failed to provide an accounting and had misused trust assets. Scott also alleged misappropriation of $107,000 of trust assets, which were characterized as trust expenses. Stacey filed an unrelated counterclaim, and the parties proceeded to trial.

The Trial Court Findings

At trial, Stacey did not dispute that she never provided Scott with a trust accounting, even though trustees are obligated to provide annual accountings. Instead, she argued she provided Scott with monthly and yearly bank statements and tax returns. She also argued that Scott knew for years that he was not receiving accountings, so his claims should be barred by the two-year statute of limitations. The trial court agreed with Stacey on both arguments and found Stacey did not commit a breach of trust as to the accountings.

At trial, Stacey also did not dispute that she wrongfully used the account funded by Scott’s trust for personal expenses. The trial court ordered Stacey to reimburse Scott his proportionate share of the funds, which was less than $500. The trial court refused, however, to award Scott reasonable attorneys’ fees, to which he was statutorily entitled.

Finally, Stacey testified at trial that the trust expenses for legal work amounting to $107,000 included work performed years before the most recent trust-related litigation. Stacey further admitted that she had been involved in legal proceedings with other family members. Moreover, all the invoices for such legal work included Jeff’s name, and none contained Scott’s. Nevertheless, the trial court found that there was no evidence that Scott’s trust paid for Stacey’s personal legal work.

Scott appealed the trial court’s decisions to the Indiana Court of Appeals.

The Indiana Court of Appeals’ Analysis

Regarding Stacey’s misuse of trust assets, the Indiana Court of Appeals explained there are two statutes that provide for attorneys’ fees in this context:

  • The first, Indiana Code § 30-4-3-11(b)(4), provides that if a trustee commits a breach of trust, the trustee is liable to the beneficiary for reasonable attorneys’ fees incurred in bringing lawsuit on the breach.
  • The second, Indiana Code § 30-4-3-22(e), provides that if a beneficiary successfully maintains an action to redress a breach of trust, he is entitled to reasonable attorneys’ fees.

Citing a decision of the Indiana Supreme Court, the Court of Appeals held that a trial court is required to award attorneys’ fees under these statutes. Because the trial court found that Stacey misused trust assets, it was required to award Scott attorneys’ fees. Therefore, the Indiana Court of Appeals reversed the trial court on this issue.

The Court of Appeals also reversed the trial court’s determination that the $107,000 in legal fees were a legitimate trust expense. It explained that the trustee bears the burden of justifying the propriety of items in a trust account. Only after the trustee makes that initial showing is the beneficiary required to demonstrate impropriety. The Indiana Court of Appeals held Stacey failed her burden because the legal invoices contained Jeff’s, and not Scott’s, name and because the work was undertaken three years before Scott had filed suit. Accordingly, the appellate court reversed the trial court on this point, too.

Finally, as to the accounting, the Indiana Court of Appeals explained that Stacey was statutorily obligated to deliver an accounting to Scott while she was trustee of his trust. The Court noted that there was no question that she did not do so. However, Scott did not explain why he allowed the two-year statute of limitations to expire before bringing his claim for an accounting. In fact, on appeal he did not even address the trial court’s determination that his claim was barred by the two-year statute of limitations. Accordingly, the Indiana Court of Appeals affirmed the trial court’s ruling for Stacey.

The Aftermath of In Re: The Scott David Hurwich 1986 Irrevocable Trust

Although this case is a memorandum decision – meaning it cannot be relied upon as controlling legal precedent – it serves a reminder to trustees to comply with the strict statutory requirements to avoid liability for attorneys’ fees, and to beneficiaries to vindicate their rights before the limitations period expires.

Trust administration and litigation are constantly evolving areas of law. Questions on estate administration and disputes should be directed to legal counsel.

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