Wilson v. Wilson
No information provided (2010)
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Rule of Law:
A provision in a trust instrument purporting to waive the trustee's duty to account to the beneficiaries is unenforceable as a matter of public policy when the information sought is reasonably necessary for the beneficiaries to enforce their rights or to prevent or redress a breach of trust.
Facts:
- In 1992, Lawrence A. Wilson, Jr. created two irrevocable trusts for his children.
- He appointed his father, Lawrence A. Wilson, Sr., as the trustee for both trusts.
- The trust instruments contained a clause stating the Trustee was not required to file any inventory, appraisal, accounts, or reports with any court or beneficiary.
- The beneficiaries alleged that the trustee, Wilson, Sr., allowed the settlor, Wilson, Jr., to take control of the trusts' assets.
- The beneficiaries claimed that Wilson, Jr. then invested the trust assets in his own highly speculative personal business ventures, which resulted in a substantial depreciation of the assets.
- The beneficiaries also alleged that the trustee breached his duty by failing to distribute income to them as required by the trust instruments.
Procedural Posture:
- The beneficiaries ('Plaintiffs') sued the trustee and settlor ('Defendants') in state trial court, alleging breach of fiduciary duty and requesting a full accounting of the trusts.
- Defendants filed an answer and a counterclaim for declaratory judgment, arguing a provision in the trust instruments excused them from providing an accounting.
- During discovery, Defendants refused to provide financial information, citing this trust provision.
- Defendants filed a motion for a protective order to prevent discovery and for partial declaratory judgment on the issue.
- The trial court granted Defendants' motion for a protective order and partial declaratory judgment, ruling that the trust provision was valid and that Plaintiffs were not entitled to the information.
- Plaintiffs filed a notice of appeal of the interlocutory order but failed to perfect it.
- Based on the protective order, Defendants moved for summary judgment, arguing Plaintiffs could not prove their claims without the discovery they were denied.
- The trial court granted Defendants' motion for summary judgment, dismissing Plaintiffs' case.
- Plaintiffs (as appellants) appealed both the final summary judgment order and the earlier protective order to the North Carolina Court of Appeals, where Defendants are the appellees.
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Issue:
Does a provision in a trust instrument that relieves a trustee of the duty to provide accounts or reports to beneficiaries prevent a court from compelling the trustee to provide information when the beneficiaries have alleged a breach of fiduciary duty?
Opinions:
Majority - Judge Wynn
No. A provision in a trust instrument cannot eliminate a beneficiary's right to information that is reasonably necessary to enforce their rights under the trust or to prevent or redress a breach of trust. While the North Carolina Trust Code allows a settlor to modify many trustee duties, it does not permit overriding the trustee's fundamental duty to act in good faith or the court's inherent power to take action necessary in the interests of justice. Allowing a trustee to be completely shielded from accountability would be a 'contradiction in terms' and would essentially be a license to misappropriate trust assets. The court applied the rule from the Restatement (Second) of Trusts, holding that beneficiaries are always entitled to information reasonably necessary to enforce their rights, and found that the information requested here met that standard. Therefore, any contrary provision in the trust instrument must yield to this fundamental principle of trust law and public policy.
Dissenting - Judge Elmore
Yes. The trust provision is valid and should prevent the court from compelling the trustee to provide an accounting. The North Carolina Trust Code explicitly states that the terms of a trust prevail over most statutory provisions, and the duty to inform beneficiaries is not listed as one of the mandatory, non-waivable duties. The legislative commentary confirms the drafters' intent to allow settlors to waive this specific duty. The majority's reliance on Taylor v. Nationsbank is misplaced, as that case was narrowly about the right to view the trust instrument itself, not a broad right to an accounting. Since the trust instrument legally relieves the trustee of the duty to provide the information, and the beneficiaries admit they cannot prove their case without it, summary judgment in favor of the defendants was appropriate.
Analysis:
This decision establishes a significant limitation on a settlor's ability to create a 'secret trust' in North Carolina. It clarifies that while settlors have broad freedom to customize trust terms, they cannot waive a trustee's core accountability to beneficiaries. The ruling elevates the beneficiary's right to information necessary to police the trust as a fundamental, non-waivable right, grounding it in the trustee's duty of good faith and the court's power to ensure justice. This precedent strengthens beneficiary protections by ensuring they have a judicial remedy to investigate potential wrongdoing, even when a trust instrument explicitly attempts to block such inquiries.
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