Bank of America v. Garrett

Opinion

SCOVILLE, J.* In this case we hold that a trustee of a testamentary trust having income producing assets must account for all gross income of the trust and not merely for net income.

We further hold that as to objecting income beneficiaries of the trust neither the doctrine of res judicata nor the statute of limitations is applicable.

Statement of Facts

On September 10, 1969, the testator died leaving a will which created a testamentary trust. Bank of America National Trust and Savings Association was named trustee. The corpus consisted of a piece of real property, known as Hawaiian Village Apartments. The trust provides for payments to the wife of the testator of $500 per month and the trustee is directed to employ said wife as the office manager and operator of the real property known as Hawaiian Village.

From November 5, 1971, to November 15, 1977, the trustee filed seven alleged annual accountings. The total income and total expenses of the trust asset were not revealed in any of these accounts. However, a monthly rental statement and periodic profit and loss statements were sent to each beneficiary by the wife. The trustee did not include any profit and loss information in the yearly accounts.

Appellant is one of the four beneficiaries who are entitled to distribution of the balance of any net income after specific payment to the wife. They are also the distributees upon termination of the trust.

The gross yearly income of the trust on the last account which was not reported is approximately $189,000. The trustee’s accounting only showed [58]income of $60,271.71 of which income from the apartments was shown as $35,181, and other income of $25,090.71. Adding $25,090.71 to the apartment gross income shows total yearly income amounting to $214,090. Of that amount only-$60,271 was reported to the court leaving a balance unreported in the accounting or anywhere visible to the court of $153,819. Expenses attributable to that income were also unreported. Wife is not an employee of the trustee. She is not bonded. The trustee does not audit the expenses of the trust incurred by the manager nor check her receipts but merely reviews cancelled checks written by the manager against ledger entries made by the manager.

From 1970 through 1978 the trustee has been paid $38,889 for administration and accounting. For the same period the trustee was allowed $3,700 for attorney fees to present the accounts, none of which reflected either total income of the trust nor total expenditures of the trust.