Fletcher v. Fletcher

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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