Statute of Limitations

Ticking-ClockA statute of limitations is a straightforward concept: if a beneficiary has a claim against a trustee, the beneficiary must file a lawsuit before a certain period of time passes or the claim is forever barred.  Section 1005 of the Uniform Trust Code provides two statutes of limitations: a 5 year statute of limitations when a beneficiary has no notice of a claim and a 1 year statute of limitations when a beneficiary has notice of a claim.  (Be aware that states that have adopted the Uniform Trust Code vary widely in the number of years that have to pass before a claim is barred; for example, Tennessee has a 3 year statute when a beneficiary has no notice of a claim and a 1 year statute when a beneficiary has notice of a claim).

What Starts the Clock?

When a beneficiary has no notice of a claim, the UTC provides that a claim must be brought within 5 years of the first to occur of (1) the removal, resignation, or death of the trustee; (2) the termination of the beneficiary’s interest in the trust; or (3) the termination of the trust.  Typically, the termination of the trust starts the 5 year clock ticking.

When a beneficiary has notice of a claim, the UTC provides that a claim must be brought within 1 year from the date that the beneficiary was sent a report which “adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.”  [This is why beneficiaries may see certain language in the fine print of trust statements such as “You should immediately review this statement and consult with your legal advisor about this account on a regular basis.  If a potential claim is disclosed by this statement, you have one year to bring a claim.”]

So, what is a report which adequately discloses the existence of a potential claim for breach of trust?  A recent opinion of the Chancery Court of the State of Delaware, In the Matter of the Thomas Lawrence Reeves Irrevocable Trust, indicates that trust statements might rise to the level of a report which adequately discloses the existence of a potential claim (one of the Plaintiffs admitted that he had received statements almost a decade before filing suit) and that an accounting of the trustee’s administration of the trust might rise to the level of a report which adequately discloses the existence of a potential claim (the Plaintiffs received a complete accounting of the administration of the trust 3 years before filing suit).  The Delaware Chancery Court held that claims which had been disclosed in the statements and in the accounting were barred forever because the Plaintiffs did not file their claim before the statute of limitations ran out.

Lessons Learned

  • For Beneficiaries: trust beneficiaries should have someone review each trust statement in order to determine if, in fact, a claim is disclosed on the statement.  If a claim is disclosed and the beneficiary does not take action quickly, the claim may be forever barred by the statute of limitations.
  • For Trustees: are you adequately disclosing potential claims?