Estate and Trust Dispute Center of Ohio

Following up on the recent blog post on basic principles of trust reporting, the Fifth District Court of Appeals released a timely analysis involving a trustee’s failure to account and an award of attorney fees against the trustee for their breach of duty in McHenry v. McHenry, (5^th Dist.), 2017-Ohio 1534.  The decision, originating out of the Stark County Probate Court is significant for two reasons:  (1) it provides a thorough analysis of a trustee’s duty to account even in the face of trust language relieving the trustee of his duty to account; and (2) the court awarded attorney fees in excess of the value of the compensatory damages, pursuant to its authority under R.C. 5810.04.

Trust Settlor passed away, leaving his two children as beneficiaries of the Trust, with one child serving as Trustee.  As a result of Trustee’s administration of the Trust, his sibling filed and proceeded to trial on several claims for conversion and breach of trust involving trust expenditures and distributions, including claims under R.C. 5808.13 for breach of duty to inform and report and breach of duty to provide accountings.  The probate court denied several claims for economic damages, including damages related to failure to provide an accounting, but awarded the return of a vehicle to the trust; damages for conversion in the amount of $13,364.32; removal; an order finding the Trustee failed to account; and attorney fees to be determined at further hearing.  Ultimately, a judgment for $49,444.29 in attorney fees was awarded for Plaintiff-beneficiary.  Further appeal by the removed Trustee resulted in an additional award of attorney fees in the amount of $17,323.46.  McHenry, ¶2-¶8.

On appeal, among other assignments of error, the Trustee challenged the probate court’s discretion to find that the Trustee had failed to provide an accounting where no accounting was required pursuant to the terms of the trust and that the total award of $66,767.75 was disproportionate to the damages and therefore an abuse of discretion.  Id., ¶9-¶15.

Pursuant to R.C. 5801.04, a trust instrument’s waiver of a duty to account prevails over the statutory duty to report to beneficiaries under R.C. 5808.13, subject to specific exceptions.  R.C. 5804.01(B)(9) carves out an exception to the waiver, mandating the trustee’s duty, under R.C. 5808.13(A), “to respond to the request of a current beneficiary of an irrevocable trust for trustee's reports and other information reasonably related to the administration of a trust”, even in light of waiver language in the trust instrument.  R.C. 5804.01(B)(9). 

In McHenry, when the beneficiary requested information about the trust administration, the Trustee provided cancelled checks and receipts.  The trial court concluded that these documents “did not comply with the requirement that he keep [the beneficiary] reasonably informed about the administration of the trust, and did not sufficiently provide [the beneficiary] with material facts necessary for her to protect her interests” and found that the Trustee breached his fiduciary duties by failing to account.  McHenry, ¶50. 

In furtherance of the fundamental policy that the protection of the trust and beneficiaries is of paramount importance, the court has wide discretion to award attorney fees to a prevailing part in the context of litigation involving the administration of the trust under R.C. 5810.04.  In McHenry, even though the award of attorney fees was exponentially larger than the award of compensatory damages, the trial court’s exercise of discretion under R.C. 5810.04 was affirmed on the basis that “a rule of proportionality in trust cases would make it difficult for beneficiaries with meritorious claims against the trustee, but with relatively small potential damages claims, to seek redress in court.”  Id., ¶60. 

The McHenry decision provides strong precedent for the award of attorney fees to the beneficiary that provides benefit to the trust through successful litigation.  The McHenry court goes so far as to award attorney fees under R.C. 5810.04 for fees related to appellate proceedings.  Trial courts traditionally are found to be without jurisdiction to award attorney fees in appellate proceedings, outside of fees awarded pursuant to a “remedial statute”, as found in the Ohio Landlord Tenant Act.  Id., ¶65.  The McHenry analysis specifically notes that the underlying policy of R.C. 5810.04 is to protect the interests of the beneficiaries through an award of litigation costs if the litigation is deemed beneficial to the trust, even if that litigation is in an appellate proceeding.  Id., ¶67-¶68.     

Reminger has experience in trust administration litigation, and is available to evaluate the circumstances of your trust matter for potential representation.