Facts
- In 1992, Lawrence A. Wilson, Jr. created two irrevocable trusts—one for each of his children, Lawrence A. Wilson, III and Leigh M. Wilson.
- Lawrence A. Wilson, Sr. (the children’s grandfather) was named trustee of both trusts.
- Each trust instrument contained language stating the trustee would not be required “by any law, rule or regulation” to prepare or file inventories, appraisals, or “regular or periodic” accounts or reports with any court or beneficiary.
- In 2007, the beneficiaries sued their father and grandfather alleging breaches of fiduciary duty in the administration and control of trust assets.
- The beneficiaries alleged, among other things, that the trustee allowed their father to invest trust assets in speculative personal business ventures that lost value and that required trust income was not distributed to them.
- To investigate and prove their claims, the beneficiaries sought an accounting and inspection of trust books and records covering the trusts’ operation from 1992 forward.
- The defendants relied on the no‑accounting language in the trust instruments and argued the beneficiaries had no right to any accounting or related disclosure.
- The trial court accepted the defendants’ interpretation, entered a protective order blocking discovery of trust accounting information, and later granted summary judgment to the defendants on the ground that the beneficiaries lacked evidence to support their claims.
- The beneficiaries appealed both the protective order and the summary judgment.
Issues
- May a settlor, through a term in the trust instrument, completely bar beneficiaries from receiving information reasonably necessary to enforce their rights or to prevent or remedy a breach of trust?
- Did the trial court err by entering a protective order that prevented discovery of trust records based on the no‑accounting clause?
- Did the trial court err by granting summary judgment for defendants after restricting the beneficiaries’ access to the information needed to prove breach-of-trust claims?
Decision
- The North Carolina Court of Appeals reversed the trial court.
- The court held that beneficiaries are entitled to information reasonably necessary to enforce their rights under the trust or to prevent or remedy a breach of trust, notwithstanding trust language aimed at eliminating routine accountings.
- Because the protective order improperly prevented the beneficiaries from obtaining such information, the protective order was reversed.
- Because the summary judgment rested on the beneficiaries’ lack of evidence after discovery had been blocked on an incorrect legal basis, the summary judgment was also reversed.
- The case was remanded for further proceedings consistent with the appellate decision.
Legal Principles
- A trustee has a duty to provide beneficiaries with information that is reasonably necessary for the beneficiaries to enforce their rights under the trust or to prevent or remedy a breach of trust.
- Trust terms may limit formal or routine accountings, but they cannot wholly eliminate a beneficiary’s right to obtain information needed to police fiduciary conduct and seek relief for alleged misconduct.
- Discovery orders that categorically bar beneficiaries from accessing information needed to test alleged breaches of fiduciary duty conflict with the trustee’s duty to keep beneficiaries sufficiently informed for enforcement purposes.
- Summary judgment is improper when it is granted on the theory that a plaintiff lacks proof after the court has wrongly prevented access to discoverable information that could supply that proof.
Conclusion
Wilson v. Wilson holds that, even where trust instruments state that no regular or periodic accountings are required, beneficiaries still retain a right to obtain information reasonably necessary to enforce their trust rights and to prevent or remedy breach-of-trust conduct; therefore, the trial court’s protective order blocking discovery and its ensuing summary judgment for the trustee and settlor were reversed and the matter was remanded.