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Trust Accountings and Incapacitated Beneficiaries

Posted Monday, September 29, 2014 by John S. Palmer

Washington law attempts to strike a balance between the rights of an incapacitated trust beneficiary to assert a claim for mismanagement of the trust with the right of a trustee to preclude such claims by proactively obtaining court approval of their actions.

Section 11.96A.070 of Washington’s Trust and Estate Dispute Resolution Act (TEDRA) provides that the beneficiary of a trust has 3 years to assert a claim against a trustee for breach of trust, starting when they receive information disclosing the existence of the potential claim.

Washington’s general statute of limitations provides that if a person entitled to bring a lawsuit is “under the age of eighteen years, or incompetent or disabled to such a degree that he or she cannot understand the nature of the proceedings…the time of such disability shall not be a part of the time limited for the commencement of action.” This is referred to as tolling the statute of limitations. However, the statute of limitations is not tolled if an incapacitated person has someone with the legal authority to assert the claim on his or her behalf, such as a legal guardian. TEDRA also permits someone to be appointed on a short term basis to represent the incapacitated person’s interests with respect to a specific trust or estate matter, which may involve settling a claim on the incapacitated person’s behalf or appearing on their behalf in litigation related to the claim. This person may be a guardian ad litem (GAL) or a special representative; the roles are similar except that a special representative must be an attorney and is usually appointed to review and sign a proposed settlement agreement on the beneficiary’s behalf. Under TEDRA, the appointment of a GAL is discretionary and under its rather complex rules regarding virtual representation no GAL may be needed if there is another person with a substantially identical interest in the particular question or dispute available to virtually represent the incapacitated person’s interests.

A separate statute, the Trustees’ Accounting Act, gives trustees the opportunity to file an accounting with the court and seek a decree approving it, which is final, conclusive and binding upon all interested parties. However, RCW 11.106.060 states that before issuing a decree, the court “shall appoint guardians ad litem as provided” by TEDRA for any incapacitated parties (or a special representative in lieu of a GAL.)

Earlier this month, the Washington Supreme Court ruled that a trust beneficiary’s claims against a trustee were not extinguished by decrees approving annual trust accountings because she was still a minor and had no legal representative when the decrees were obtained; the court disagreed with the beneficiary’s claim that the appointment of a GAL for her was mandatory under the Trustees’ Accounting Act, but said the parties were focusing on the wrong question:

Though respondents are correct that the appointment of guardians is discretionary under both the [Trustees’ Accounting Act] and TEDRA, there must be a consequence for initiating an accounting proceeding without one…we hold that minors without an appointed guardian or other valid virtual representative lack notice of any ongoing accounting proceedings.

The court went on to say that as a result of this lack of notice, TEDRA tolled the statute of limitations for breach of trust while the beneficiary was a minor, and she brought her claims in a timely manner after becoming an adult.

The case, Anderson v. Dussault et al, caught the attention of the elder law and special needs planning community because it is common to seek court approval of accountings for special needs trusts; in fact, the trust at issue in Anderson was a special needs trust established by a court to hold the proceeds of a personal injury settlement. Unless the disabled beneficiary already has a guardian, this puts the trustee in the position of having to decide whether or not to incur the time and expense of seeking the appointment of a GAL or special representative for each accounting. Anderson will most likely tip the scales in favor of incurring that expense.

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Law Office of John S. Palmer11911 NE 1st St, Ste. B204,Bellevue, WA 98005-3056