April 26, 2013
Trust Accounting Exceptions
A trustee is normally required to render an annual accounting to a beneficiary subject to the following exceptions.
Accounting Waived by Trust Instrument
The trust may waive the right to an accounting per Prob C §16064(a). However, despite an accounting waiver clause in the trust, such can still be required "upon a showing that it is reasonably likely that a material breach of the trust has occurred."
For example, Bobby Beneficiary receives a copy of his Aunt Gertrude's trust following her death. The trust specifically waives the right to an annual accounting. Bobby is aware that Aunt Gertrude's trust owns a rental home that is currently occupied. Bobby passes by the rental property one day to discover a rotting roof, cracked driveway and chipped paint. Bobby calls the trustee, Turner, who explains to Bobby that the house is in perfect condition and there is no need to worry because the rent checks show up timely each month for the correct amount. Bobby implores Turner to inspect the property given its state but Turner declines given that the house is cash-flow positive. Undeterred by Turner's indifference, Bobby asks for an accounting because Bobby is concerned that the structural repairs are substantial and Turner does not have adequate trust assets to cover these costs.
Beneficiary Waives Right to Accounting
Many legal rights in life can be waived. For example, you may waive your Miranda rights, i.e. the right to keep quiet or speak to an attorney if subject to custodial interrogration by law enforcement. Similarly, a beneficiary may waive their right to waive an accounting.
All that suffices is a simple written statement that the beneficiary waives the right to an accounting. However, this waiver is practically illusory. The waiver can be rescinded on a whim. Prob C §16064(b) states "a waiver of rights under this subdivision may be withdrawn in writing at any time as to accounts for transactions occurring after the date of the written withdrawal."
In light of the inherent flimsy nature of an accounting waiver, requesting one from a beneficiary is often of little value.
The Beneficiary is the Trustee
When a person writes a trust, e.g. a married couple, they are often the settlor, trustee and beneficiary initially. In such a case, no accounting need be given. Prob C §16069. Conceptually this is quite logical because a person does not have to tell the right hand what the left hand is doing.
A question I have seen on a few occasions is where a child is concerned about a parent's spending habits. The child is the beneficiary of the trust following the parent's death and wants to ensure there is something left when they inherit. Since the parent is trustee and beneficiary, the child is not entitled to one. However, there is nothing preventing the parent from providing an accounting. Although the accounting would not be compelled by law but rather kindness.