A fiduciary has an affirmative duty to make a full and accurate disclosure of all material facts that might affect the beneficiary’s rights. The trust accounting is the primary way that the beneficiary obtains information that will allow him to protect his rights. The accounting should be in a form that is clear and understandable and allows the beneficiary to get a complete picture of the administration of the trust.
Under the Texas trust code, the trustee is not required to make any formal accounting within a particular time. However, a beneficiary has the right to demand an accounting. Except for exceptional circumstances, the beneficiary can demand an accounting any time after 12 months since the last accounting. If there has never been an accounting, the beneficiary can demand one immediately. Once the demand has been made, the trustee has 90 days to make the accounting. If the trustee does not make the accounting within 90 days, the beneficiary can file suit and the trustee may be liable from his personal funds for the beneficiary's attorney's fees. He may also be removed as trustee by the court for failing to make the accounting.
The trust code provides that the accounting must include:
- The trust property that has been received and was not previously listed in a prior accounting.
- A list of receipts and disbursements, allocated between income and principal.
- A list and description of all property being administered (with descriptions.)
- Cash accounts, their balance, and where they are deposited.
- A list of all trust liabilities. §113.152
While a beneficiary is not required to accept anything less than a full accounting, he may want to ask the trustee to provide an informal accounting that is not as extensive as the trust code accounting. The beneficiary needs to let the trustee know that he is not waiving his rights to a full accounting but might be satisfied by the trustee letting the beneficiary look at the books and records, review financial statements, look at tax returns, etc.
Since the trust code accounting may be expensive and the reasonable and necessary cost of that are ordinary expenses of the trust, the trustee may threaten the beneficiary by claiming that an accounting will be very expensive for the trust which would leave fewer funds that will eventually go to the beneficiary. However, since the trustee is under an obligation to keep complete books and records, the accounting should not be expensive. If it is, the trustee may have committed a breach of his fiduciary duty by failing to maintain those books and records in good order so that a complete and inexpensive accounting can be made.
One problem for the beneficiary of obtaining an accounting from a trustee is that if the accounting discloses bad conduct on the part of the trustee, the statute of limitations may start running from the date of the accounting. That puts the burden on the beneficiary to take some action to protect his rights. If the action is not taken in the proper time frame, the beneficiary could lose some rights.