The Maryland Court of Special Appeals in Johnson v. Johnson, interpreting Maryland Code section 14-405, supports the position of the beneficiaries of an A/B Trust to demand an annual accounting of all receipts and disbursements from both Trust A and Trust B. Upon demand by any beneficiary, the Trustee must provide an accounting of both Trusts. The Court held:
Because James has a future interest in the Trust, despite the uncertainty of his actually benefitting from that future interest, we hold that he is entitled to an accounting from the Trustee. Maryland Code (1974, 2001 Repl. Vol.), § 14-405(j)(1) of the Estates and Trust Article (“ET”) lists several categories of people who are permitted to request an accounting of trust property and transactions. The relevant parties included in the list are “The beneficiary or the beneficiary’s legal representative.” ET § 14-405(j)(1)(ii). In response, “(2)The trustee shall provide a written accounting of all trust property and trust transactions for the previous year, or for a longer period if needed for tax purposes, upon request by and at reasonable times to a person authorized in paragraph (1) of this subsection.” ET § 14-405 (j)(2). In In re Clarke’s Will, 198 Md. 266, 81 A.2d 640 (1951), the Court of Appeals expounded on who was permitted to request an accounting. The Court stated that, “[i]f the petitioner has any interest at all he is entitled to invoke the court’s protection.” Id. at 273 (citations omitted). The Court continued by explaining that “[t]he mere fact that future interests are involved will not defeat the power to declare rights . . . .” Id.
When last confronted with this issue, we relied on In re Clarke’s Will, 198 Md. 266, 81 A.2d 640, Austin W. Scott and William Fratcher’s The Law of Trusts, and George Bogert’s Treatise on the Law of Trusts and Trustees and we held that “[t]he fact that a beneficiary has only a future interest . . . does not preclude him from compelling the trustee to account.” Jacob v. Davis, 128 Md. App. 433, 448, 738 A.2d 904 (1999).
With regard to the request for an accounting of Trust A, in addition to Trust B, the Court held:
Alternatively, Catherine contends that if James is entitled to an accounting, it should be limited to Trust B. We disagree and conclude that James can request an accounting of the entire Trust. While his interest in Trust B is more defined, he has an interest in Trust A and how Catherine manages it. While Catherine is living, she has access to both trusts and the management of Trust A potentially affects the proceeds available for Trust B. In short, the trusts are inextricably linked and limiting James’s right to an accounting of Trust B will not satisfy the Trustee’s legal responsibility to him.
We now adopt this reasoning and conclude that a trustor cannot, by including limitations in the Trust instrument, circumscribe the trustee’s duty to account to beneficiaries. This conclusion is in line with recognized Maryland law regarding trusts and accountings.
The relevant portion of Maryland Code § 14-405 – Administration by Trustee, states as follows:
(j) Accountings — In general. —
(1) The following persons in the order listed may request an accounting of trust property and transactions:
(i) The transferor or the transferor’s legal representative;
(ii) The beneficiary or the beneficiary’s legal representative;
(iii) The guardian of the person of the beneficiary;
(iv) An adult member of the beneficiary’s family or that family member’s legal representative; or
(v) A person interested in the trust property or a person interested in the welfare of the beneficiary, either of whom the court determines to have a legitimate interest.
(2) The trustee shall provide a written accounting of all trust property and trust transactions for the previous year, or for a longer period if needed for tax purposes, upon request by and at reasonable times to a person authorized in paragraph (1) of this subsection.
Interestingly, the Maryland Court of Appeals granted certiorari and agreed to hear an appeal of the Johnson v. Johnson case. Stay tuned!