New Statute of Limitations Provisions Benefit Trustees

In 2011, the Washington State Legislature revised RCW 11.96A.070, the statute of limitations for breach of fiduciary duty claims against trustees. The new statute became effective January 1, 2012. Under prior law, a beneficiary could sue a trustee for breach of fiduciary duty within three years from the earlier of the following: (i) the time the beneficiary discovered or reasonably should have discovered the breach, (ii) the discharge of the trustee from the trust by a court or by agreement of the parties, or (iii) the time the trust terminated or was repudiated by the trustee. The inclusion of the “discovery rule” exposed trustees to significant risk, as a beneficiary could argue that he or she did not know about the events giving rise to the alleged breach. Washington courts had taken a very beneficiary-friendly approach to the discovery rule, finding that the beneficiary’s financial sophistication should be taken into account in determining whether the beneficiary reasonably should have discovered the breach.  See, e.g., Gillespie v. Seattle-First Nat’l Bank, 70 Wn.App. 150 (1993).

The new statute allows a trustee to start the running of the three year statute of limitations by providing a written report to interested parties disclosing the existence of potential claims and informing them of the time allowed for bringing such claims.  The report is presumed to meet these requirements if it provides the following:

  • a statement of receipts and disbursements of principal and income;
  • a statement of the assets and liabilities of the trust and their values at the beginning and end of the period;
  • the trustee’s compensation for the period;
  • the agents hired by the trustee, their relationship to the trustee, and their compensation, for the period;
  • disclosure of certain types of transactions binding for five years or more;
  • disclosure of conflict-of-interest transactions, including those mentioned in RCW 11.98.078;
  • a statement that the beneficiary may petition the superior court to obtain review of the statement and of the trustee’s acts disclosed in the statement; and
  • a statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives the report.

If the trustee does not provide the notice, the three year statute of limitations begins upon the first to occur of the following: (i) the removal, resignation, or death of the trustee, (ii) the termination of the beneficiary’s interest in the trust, or (iii) the termination of the trust. Notably, the new statute does not incorporate a discovery rule. While it is possible that a Washington court might apply the discovery rule to breach claims regardless of the statutory language, the new statute appears intended to give trustees a way to limit the time period during which claims can be brought against them, while also keeping beneficiaries well-informed about trust matters. If you have any questions about the new statute and how it might affect you, please contact our office.

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