For the beneficiary to be prevented by “laches” from holding the trustee liable for a breach of trust, the beneficiary must have so delayed in bringing an action against the trustee that it would be inequitable to permit the beneficiary to hold the trustee liable. As a matter of public policy, suits should be brought with reasonable promptness. With the passage of time, it becomes difficult to ascertain the truth. The enforcement of a constructive trust also may be barred by laches. Laches generally will not bar a beneficiary while under a legal incapacity, such as minority or incompetence, or bar the holder of an outstanding contingent equitable remainder interest until the intervening interest has expired.
A cause of action against a trustee for breaches of the duty of loyalty (or any type of breach for that matter) would not be barred by laches until a reasonable time after all beneficiaries, both current beneficiaries and remaindermen, had become fully aware of the breach and its legal implications and failed to take appropriate action. The Restatement (Third) of Trusts is generally in accord. In one state, a remainderman has a reasonable time after his interest vests in possession to bring suit against the trustee for a breach of trust. See Eldridge v. Eldridge, 398 S.C. 113, 728 S.E.2d 24 (2012). This would be the case even if he had become aware of the breach prior to the time of such vesting.
To start the running of an applicable statute of limitations, there must be subjective awareness on the part of the beneficiary of the relevant facts and law pertaining to the breach of trust. It is fair to say that the “discovery-rule” exception to the mechanical application of limitations statutes is generally applicable when it comes to determining the timeliness of the bringing of a breach-of-trust action. The rule is particularly suited to the person to whom a fiduciary duty is owed who is either unable to inquire into the fiduciary’s actions or unaware of the need to do so. How a beneficiary ultimately became “aware of” or “discovered” a breach of trust, whether via information supplied by the trustee or via information supplied by a third party or from first-hand knowledge/actual notice, however, should be irrelevant when it comes to determining when sufficient awareness of the facts and law material to the breach had been achieved. See Berry v. Berry, 65 Tex. Sup. Ct. J 997, ---S.W.3d--- (2022), 2022 WL 1510330. Statutes of limitations applicable to actions by beneficiaries against trustees for breaches of trust should be looked upon as little more than partial codifications of equity’s laches doctrine. Essentially all that has been codified is the period beginning immediately after breach awareness is achieved in which an aggrieved beneficiary may bring a breach-of-trust action. In Texas the statutory period is four years. Apart from the UTC’s repose feature, the UTC would limit the period to one year.
Black-letter laches doctrine is the subject of §8.15.70 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in its entirety in the appendix below. The handbook is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.