Present: Carrico, C.J., Compton, Stephenson, Lacy, Hassell, and
Koontz, JJ., and Whiting, Senior Justice
HENRY L. FLETCHER,
TRUSTEE, ET AL.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 960693 January 10, 1997
JAMES N. FLETCHER, JR.
FROM THE CIRCUIT COURT OF FAUQUIER COUNTY
H. Selwyn Smith, Judge Designate
In this chancery proceeding arising from a dispute over an
inter vivos trust, we consider the extent of a trustee's duty to
furnish information about the trust instrument and about other
documents relating to the trust.
The facts are presented on appeal by a Rule 5:11 agreed
statement of facts. During their lifetimes, J. North Fletcher
and Elinor Leh Fletcher, his wife, residents of Fauquier County,
accumulated substantial assets.
Following Mr. Fletcher's death in 1984, Mrs. Fletcher
executed a revocable, inter vivos "Trust Agreement" in December
1985 in which she placed all her assets. The ten-page document,
containing nine articles, named her as both "Grantor" and
"Trustee." In August 1993, the Grantor modified the Trust
Agreement by executing a "Trust Agreement Amendment." The five-
page Amendment replaced Article Six of the Trust Agreement with a
new Article Six.
The Trust Agreement as amended (the Trust Agreement)
contains, among other things, specific provisions for the
establishment of a number of trusts upon the Grantor's death,
including three separate trusts for the respective benefit of
appellee James N. Fletcher, Jr., an adult child of the Grantor,
and his two children, Andrew N. Fletcher, born in 1972, and Emily
E. Fletcher, born in 1976 (sometimes collectively, the
beneficiaries). The three separate trusts were to be in the
amount of $50,000 each. The Trust Agreement appointed appellant
Henry L. Fletcher, another adult child of the Grantor, and
appellant F & M Bank-Peoples Trust and Asset Management Group,
formerly Peoples National Bank of Warrenton, as successor
Trustees to act upon the Grantor's death.
Under the Trust Agreement, the Trustees are authorized, in
their discretion, to expend for the benefit of James N. Fletcher,
Jr., such amounts of the net income and principal of the $50,000
trust as may be necessary to provide him adequate medical
insurance and medical care during his lifetime, or until such
time as the trust is depleted. In the event the trust is still
in existence at Fletcher's death, then the Trustees are required
to transfer and pay over to his surviving children his or her
proportionate share of the balance of the remaining principal and
income.
Under the Trust Agreement, the Trustees also are authorized,
in their discretion, to expend for the benefit of Fletcher's
children such amounts of the income and principal of each of the
$50,000 trusts as they deem advisable.
The Grantor died in June 1994. Upon her death, the Trust
Agreement became irrevocable, and the successor Trustees assumed
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their duties. They established the three $50,000 trusts, and the
beneficiaries have benefited from them.
In June 1995, beneficiary James N. Fletcher, Jr., instituted
the present proceeding against the Trustees. In a bill of
complaint, the plaintiff alleged that the December 1985
instrument recites that the Grantor "transferred, assigned and
set over certain cash and securities which were . . . described
in a schedule entitled `A' attached to the trust agreement." The
plaintiff further alleged that, upon his mother's death, he was
advised that the assets had been transferred to "a new trust"
with the defendants as Trustees.
The plaintiff also asserted that he "requested details from
the defendants of both the December 3, 1985 trust and the trust
created with the assets of that trust upon his mother's death,"
and that the Trustees have refused to comply with his request.
He further asserted that he has been provided with only pages 1,
8 and 9 of the 1985 instrument and "two pages" from the
Amendment. The plaintiff also asserted that "[w]ithout a listing
of the precise terms of both trust agreements or a complete
listing of the assets of these trusts," he is "unable to
determine whether or not the trust estate is being properly
protected."
Plaintiff also alleged that Trustee Henry L. Fletcher "has
repeatedly made a point of justifying his failure to disclose the
requested information . . . by stating that it was his mother's
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request that the trust terms and dealings be kept confidential,
even from the beneficiaries." Further, the plaintiff asserts
that Trustee Fletcher "has failed to produce any written
direction from [their mother] with respect to the
confidentiality." This situation, along with other facts,
according to the allegations, has resulted in "an extremely
strained relationship between" the brothers.
Concluding, the plaintiff alleged that because he lacks the
"relevant information" sought, "he is unable to determine whether
or not either trustee is properly performing their duties as a
trustee[] according to law." Thus, he asked the court to compel
the Trustees "to provide full and complete copies of all trust
instruments in their possession that relate to the two trusts
referred to herein."
In a demurrer, the Trustees asserted that the bill of
complaint failed to state a cause of action. In an answer, the
Trustees denied that any "new trust" was created upon the
Grantor's death, and asserted that the Trust Agreement remained
in effect following the death. The Trustees asserted, however,
that upon the death, "separate trusts were created under the
express terms of the Trust Agreement," and that the plaintiff has
been provided with "all provisions of the Trust Agreement
relating to him and his children, along with regular accountings
relating to his interest under the Trust Agreement." In sum, the
Trustees denied the plaintiff is entitled to the information
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sought.
In October 1995, pursuant to an agreed order, the Trustees
filed the Trust Agreement under seal with the court, to be
examined only by the court.
Subsequently, the trial court heard argument on the demurrer
and, during the hearing, ruled that the plaintiff was entitled to
see all provisions of the Trust Agreement. The court noted that
the plaintiff's "interests as a child of" the Grantor and as "a
beneficiary of her trust outweighed the arguments advanced" by
the Trustees.
Accordingly, in a January 1996 final order, the court said
it was of opinion that the plaintiff "has an absolute right to
complete copies of the Trust Agreement and all amendments
referred to in the pleadings and associated documents." Thus,
the court ordered the Trustees to provide the plaintiff with
"full and complete copies of the Trust instruments that are
referred to in the Bill of Complaint filed in this cause." The
Trustees appeal.
The Trustees contend the trial court erred in finding that
the plaintiff had an absolute right to review complete copies of
the Trust Agreement and in ordering them to provide plaintiff
with such copies. Emphasizing that the trust instrument
established three separate trusts, the Trustees argue the trial
court's order "ignores the fiduciary duty of confidentiality
between the Trustees and other beneficiaries under the . . .
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Trust Agreement." Noting the use of revocable trusts in planning
disposition of assets upon death, the Trustees say that following
a grantor's death, "the trustees handle the trust assets for the
various beneficiaries, in accordance with the grantor's
instruction, in a manner appropriate for each beneficiary taking
into account the unique circumstances applicable to each
beneficiary."
Continuing, the Trustees observe that a grantor, as here,
often "directs the trustee to segregate trust assets into
separate trusts for the benefit of different beneficiaries." See
Code § 55-19.3 (trustee may divide a trust into two or more
separate trusts). According to the Trustees, "Segregation of a
trust into separate trusts for different beneficiaries not only
segregates the assets, but also segregates the trustee's duties
to the different beneficiaries." The Trustees say that a
"trustee has a continuing duty to the grantor to fulfill the
trustee's obligations under the trust agreement. The trustee
also has a fiduciary duty to the beneficiaries of each trust
established under the agreement. The trustee's duties to the
beneficiaries of each separate trust do not overlap."
The Trustees point out the plaintiff has not alleged any
wrongdoing on their part "nor has he alleged that he has any
interest under the . . . Trust Agreement other than his interest
in a separate trust established for his benefit." The Trustees
state they have provided the plaintiff with copies of the
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portions of the Trust Agreement that pertain to the establishment
and administration of the separate trusts, have submitted a copy
of the Trust Agreement to the trial judge so the court may
determine whether they have disclosed to the plaintiff all
relevant information, and have provided regular accountings to
the beneficiaries with respect to their separate trusts. The
Trustees argue that the family relationship and the "specter" of
disharmony, standing alone do not create a right in the plaintiff
to compel disclosure. Finally, the Trustees argue "the trial
court's Order compelling disclosure violates the public policy
that permits individuals to ensure privacy of their affairs
through the use of inter vivos trust agreements in lieu of
wills."
We do not agree with the Trustees' contentions. They place
too much emphasis upon the duties of trustees while neglecting
the rights of beneficiaries.
This is a case of first impression in Virginia. The parties
have not referred us to any cases elsewhere that are factually
apposite, and we have found none. Nevertheless, text writers and
the Restatement articulate settled principles that are
applicable.
"The beneficiary is the equitable owner of trust property,
in whole or in part. The trustee is a mere representative whose
function is to attend to the safety of the trust property and to
obtain its avails for the beneficiary in the manner provided by
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the trust instrument." Bogert, The Law of Trusts and Trustees
§ 961, at 2 (Rev. 2nd ed. 1983). See Shriners Hospitals for
Crippled Children v. Smith, 238 Va. 708, 710, 385 S.E.2d 617, 618
(1989) (trustee should preserve and protect trust fund for
benefit of all interested in its distribution). See also Rowland
v. Kable, 174 Va. 343, 367, 6 S.E.2d 633, 642 (1940) (trustee
owes undivided duty to beneficiary). The fact that a grantor has
created a trust and thus required the beneficiary to enjoy the
property interest indirectly "does not imply that the beneficiary
is to be kept in ignorance of the trust, the nature of the trust
property and the details of its administration." Bogert, § 961,
at 2.
Therefore, "[t]he trustee is under a duty to the beneficiary
to give him upon his request at reasonable times complete and
accurate information as to the nature and amount of the trust
property, and to permit him or a person duly authorized by him to
inspect the subject matter of the trust and the accounts and
vouchers and other documents relating to the trust." Restatement
(Second) of Trusts § 173 (1959). Accord Bogert, § 961, at 3-4;
IIA Scott, The Law of Trusts § 173, at 462 (4th ed. 1987).
Indeed, "[w]here a trust is created for several beneficiaries,
each of them is entitled to information as to the trust." Scott,
§ 173, at 464.
And, even though "the terms of the trust may regulate the
amount of information which the trustee must give and the
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frequency with which it must be given, the beneficiary is always
entitled to such information as is reasonably necessary to enable
him to enforce his rights under the trust or to prevent or
redress a breach of trust." Restatement § 173 cmt. c. See In Re
Estate of Rosenblum, 328 A.2d 158, 164-65 (Pa. 1974).
Turning to the present facts, we observe that the appellate
record fails to establish that the Grantor directed the Trustees
not to disclose the terms of the entire Trust Agreement to the
beneficiaries. The trust instrument, which we have examined,
does not mention the subject. Although the Trustees assert the
Grantor orally gave such instructions, the plaintiff questions
this fact. And, there was no evidentiary hearing below to decide
the matter. Thus, we express no opinion on what effect any
directive of secrecy by the Grantor would have on the outcome of
this case.
Recognizing the foregoing general principles of the law of
trusts, the Trustees nevertheless seek to remove this case from
the force of those rules by dwelling on the fact that three
separate trusts were created. In essence, the Trustees treat
this single integrated Trust Agreement as if there are three
distinct trust documents, each entirely independent of the other,
a circumstance that simply does not exist.
There is a single cohesive trust instrument based on a
unitary corpus. The Trustees seek to avoid the beneficiary's
scrutiny of eight pages of the Trust Agreement. They also seek
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to prevent review of Schedule "A," which lists the cash and
securities the Grantor transferred to the trust corpus. This
document was not even included in the sealed papers filed with
the trial court.
The information not disclosed may have a material bearing on
the administration of the Trust Agreement insofar as the
beneficiary is concerned. For example, without access to the
Trust Agreement (even though there are numerous separate trusts
established), the beneficiary has no basis upon which he can
intelligently scrutinize the Trustees' investment decisions made
with respect to the assets revealed on Schedule "A." The
beneficiary is unable to evaluate whether the Trustees are
discharging their duty to use "reasonable care and skill to make
the trust property productive." Sturgis v. Stinson, 241 Va. 531,
535, 404 S.E.2d 56, 58 (1991) (quoting Restatement (Second) of
Trusts § 181 (1959)). Also, the beneficiary is entitled to
review the trust documents in their entirety in order to assure
the Trustees are discharging their "duty to deal impartially"
with all the beneficiaries within the restrictions and conditions
imposed by the Trust Agreement. Sturgis, 241 Va. at 534-35, 404
S.E.2d at 58.
In sum, we hold that the trial court correctly required the
Trustees to disclose the information sought. Thus, the judgment
appealed from will be
Affirmed.
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