A Strong Offense
A Stronger Defense
The concept of a statute of limitations is easy to understand: a lawsuit has to be commenced within so many years after the complained of act occurred or you can’t pursue the lawsuit. Where it gets tricky are all the exceptions to the rule. For example, if the wrongdoer concealed the wrongful act or the wrongful act occurred in some way that made it highly unlikely that the aggrieved person would know about it, then the statute of limitations shouldn’t start running until the injured person knows or through reasonable diligence should have known about the wrongful act. This “tolling” of the statute of limitations is called the discovery rule: the statute of limitations doesn’t start running until a plaintiff knew or reasonably should have known of the act.
Analisa Palmer (formerly Analisa Bowen) was a beneficiary of the Bruce J. Bowen Irrevocable Trust, but she didn’t know it. During April 1996, notices of an Order for Appointment of Successor Trustee and Alternate Successor Trustee which appointed Bruce as trustee of the Trust and amended the list of alternate successor trustees of the Trust were published in several newspapers. The underlying order stated that “[t]he required notices have been given.” The order, however, also listed Analisa’s address as “unknown.”
In 2001, Bruce J. Bowen amended the Trust to remove Analisa and her brother, Cordell Bowen, as Trust beneficiaries and to make Tonna Lee Bowen the sole beneficiary and successor trustee of the Trust.
Analisa filed a lawsuit on May 25, 2007, claiming that the 2001 modification was invalid and unenforceable, requesting that she be appointed successor trustee of the Trust, and that judgment be entered against Tonna for the money she took from the Trust between 2002 and 2006.
In Utah, a four-year statute of limitations applies to most trust disputes. Under appropriate circumstances, however, the discovery rule applies, and it applied to Analisa’s trust lawsuit.
Analisa submitted an affidavit that stated she did not have any knowledge of the Trust until May 26, 2006. On appeal, Tonna tried to use proof of publications showing that the notice of the Trust was published in three issues of two different newspapers during April 1996. This could have been great evidence for Tonna, but she never put it in the record at the trial court level until it was too late, and, thus, the Court of Appeals couldn’t consider the newspaper publications or whether they gave Analisa constructive notice of the Trust. Therefore, the only evidence before the court was Analisa’s affidavit saying she didn’t know about the Trust until May 26, 2006, and the 1996 order stating that Analisa’s address was unknown.
While it’s true that Analisa’s claim accrued in 2001, when the amendment to the Trust was executed, or sometime after Bruce died on May 18, 2002, and Tonna acted upon the terms of the 2001 amendment, the evidence before the court showed that Analisa lacked constructive or actual notice of the Trust until May 26, 2006, and thus, the statute of limitations did not start running until that date.
Okay, so how does a trustee guard against the discovery rule? Unless otherwise prohibited, inform beneficiaries of the existence of the trust. Many states even have “duty to inform” statutes. Make every effort to learn and keep current the beneficiaries’ addresses. This doesn’t mean that you have to go out and hire a private investigator to track down every fugitive beneficiary, but there’s so much that can be learned about people just by using simple internet searches.
So that solves the problem about knowing about the trust, how do you get the clock running on claims for breach of fiduciary duty? Now that you know the beneficiaries’ addresses, send them regular written reports (i.e., account statements) that show what’s going on in the trust. Some states, like Georgia in its new Trust Code, actually shorten the statute of limitations if a beneficiary receives a written report that “adequately discloses the existence of a claim against the trustee for breach of trust.”