A Beneficiary’s Right to Demand an Accounting is Not Absolute – Part 2

HNWEstate Administration and Probate

Part 1 of this article left off with observations from cases in which courts declined to enforce a beneficiary’s demand for an accounting.

A formal accounting can cost thousands of dollars.  Some trusts or estates are small enough that the cost of a formal accounting would be a significant diminution of assets.  Other times, there may not even be sufficient assets available to retain an accountant or lawyer to complete the work.  These practical reasons can undermine a beneficiary’s request for relief from the court.  Often, these can be spotted early in the dispute and counsel should be able to craft alternative solutions to resolve the beneficiary’s concerns.

A “bad faith” demand is one where the beneficiary cannot articulate a need for the formal accounting but nonetheless presses for one solely to hamper the administration of the estate or to threaten the fiduciary.

The more complicated question concerns what a would court view as a sufficient reason for making an accounting demand.  After all, we refer to “a right to an accounting” though the court has ultimate say over whether or not to compel a fiduciary to render an accounting.  The general reasons a court might compel an accounting tend to be:

  • A fiduciary has not responded to informal demands by a beneficiary for an accounting;
  • A fiduciary has not provided any financial information to any beneficiaries;
  • A fiduciary has stated that a beneficiary will not receive a specific bequest, or that the bequest will be pro-rated;
  • A fiduciary has taken a demonstrable action that will endanger the estate or the interests of the beneficiaries (e.g., if the fiduciary has a gambling addiction, if the fiduciary has taken excessive financing leveraged against the estate/trust, or if there are other acts or circumstances tending to show a breach of duty); or
  • A fiduciary has made uneven distributions to beneficiaries with equal interests.

This list is only common observations and not meant to be reference material or specific guidance as to any particular case.

In each case, rather than taking for granted that a court will enforce an accounting demand, it is vitally important for a beneficiary to identify all the factors that support the demand.  And it is just as important on the other side that a fiduciary understand what factors mitigate against a formal accounting demand and when it is in the best interests of the trust or estate to avoid a formal accounting.

If you are looking for additional details on this topic or if you require advice about your situation, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

Written by Christopher Balioni, Esq. of Hanlon Niemann & Wright

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