Title: Fletcher v. Fletcher

State: virginia

Issuer: Virginia Supreme Court

Document:

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 
 
 
 
 
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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.