The trustee’s general duty to account to nonqualified beneficiaries is regulated by general principles of equity, not the Uniform Trust Code: A critique of Schwalm v. Schwalm (2023)

Charles E. Rounds, Jr. - Suffolk University Law School

The Uniform Trust Code is not self-contained and all inclusive. It does not even presume to define what a trust is. It is merely an aggregation of tweaks to the law of trusts, the trust relationship being a creature of equity, not statute. In the case of an irrevocable trust, the trustee is accountable in equity to all the beneficiaries, whether their interests are vested or contingent, present or future. Assume X is designated as entitled to the remainder in corpus. Were the trustee not accountable to X even during the life of the trust, then the trustee, not X, would be the true remainder beneficiary. X would be a beneficiary in name only. The trustee of an irrevocable trust owes fiduciary duties to all the beneficiaries. This must be. Enforceability is the glue that holds a trust relationship together. And accountability is enforceability’s sine qua non. No accountability, no enforceability. No enforceability, no trust. The UTC’s concept of the qualified beneficiary is causing much confusion. The UTC does not subvert the principle of general fiduciary accountability. Rather, the UTC imposes on the trustee an additional layer of accountability, namely the duty to render period reports to a sub-set of the general beneficiary class, namely the qualified beneficiaries: “Due to the difficulty of identifying beneficiaries whose interests are remote and contingent, and because such beneficiaries are not likely to have much interest in the day-to-day affairs of the trust, the Uniform Trust Code uses the concept of ‘qualified beneficiary’ to limit the class of beneficiaries to whom certain notices must be given or consents received.” UTC § 103(13), cmt. The UTC in no way interferes with the critical equity maxim that the trustee of an irrevocable trust has an affirmative duty to furnish each beneficiary with all the information that that particular beneficiary would need to effectively defend his, her, or its equitable property rights. Only when there is compliance does the breach-of-trust statute of limitations begin to run against the beneficiaries. Equitable accounting is a general procedural remedy that has been ubiquitous in fiduciary litigation since time immemorial. See generally § of Loring and Rounds: A Trustee’s Handbook (2024), which section is reproduced in the appendix below.

The Appeals Court of Massachusetts in Schwalm v. Schwalm ignores core trustee-accountability doctrine, doctrine that was reinforced, not diluted, by Massachusetts’ version of the UTC: “Had the legislature intended to include a duty to account to nonqualified beneficiaries,” the court notes, “it could have done so.” See 2023 WL 4376737. True, but irrelevant. The general duty pre-existed the MUTC and survived its enactment fully intact. See MUTC §103 (expansive definition of term beneficiary) and §105(b)(2) (fiduciary duties owed to all beneficiaries). The Supreme Judicial Court of Massachusetts needs to see to it that nonqualified beneficiaries of irrevocable trusts are not prevented by the state via its judiciary from defending their vested and contingent equitable property rights. The integrity of the very institution of the trust is at stake, at least in Massachusetts. Colecchia, unfortunately, was not an aberration. See my Jan. 1, 2022 JDSUPRA posting:

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Charles E. Rounds, Jr. - Suffolk University Law School

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