Iowa’s trust and probate codes impose significant legal duties on personal representatives, executors and trustees to provide heirs and beneficiaries with estate accountings that indicate how the fiduciaries are managing estate affairs.
Interested parties can also introduce estate accountings as evidence in court to show a fiduciary is in breach of duty—arising when trustees and executors fail to produce estate accountings or when the documents presented are inaccurate or incomplete.
Let’s examine how estate accountings function in probate and trust matters and consider how these documents play a part in Will and Trust dispute litigation.
Estate Accountings for Probate Matters
When a Will enters probate, the executor must file an estate accounting with the probate court after paying the decedent’s debts, taxes and creditor claims. The filing officially closes the estate, which takes place just before the fiduciary distributes the remaining estate assets to beneficiaries.
Probate judges, however, may delay asset distribution if they find that an estate accounting does not follow Iowa Probate Code requisites or discover the fiduciary’s reporting lacks quality or is missing essential information about the estate’s financial position.
Heirs and beneficiaries may further ask the fiduciary to produce an informal summary of the estate’s financial affairs at any time during probate proceedings.
Such informal accountings often report on:
- Estate inventory and asset values.
- Tax obligations due.
- Creditor’s claims filed against the estate.
Interested parties who, after reviewing their probate accountings, discover inaccuracies, omissions or incomplete entries on their statements, may sue the executor to hold him/her personally liable in monetary damages for breach of fiduciary duty.
Heirs may further pursue equity challenges in court to compel a personal representative to act (or not to act) when the fiduciary’s conduct would cause potential financial losses to the estate. An equity court may also order fiduciary removal and replacement when the executor lacks the expertise or skills to execute a Will properly.
Estate Accountings in Trust Matters
Iowa Trust Code compels trustees to deliver at least one estate accounting to beneficiaries each year. Such accountings often include statements of assets, income and distributions from the trust.
When trustees fail to produce their annual accountings, beneficiaries can motion the probate courts to compel them to perform.
Trust beneficiaries may further sue the trustee for breach of fiduciary duty when one of the following situations arises:
- An undue amount of time has passed after requesting an informal accounting.
- Trustee doesn’t deliver the end-of-year accounting.
- An annual or informal accounting contains errors or is incomplete.
- Trustee mismanaged trust real property or invests imprudently.
- Trustee is not following the terms of the trust agreement.
Committing fiduciary negligence and fraud in probate and trust matters is serious misbehavior in Iowa. The courts will hold trustees and executors personally responsible for making interested parties whole again when they fail to produce estate financial reports or when they place their own interests above the heirs’ and beneficiaries’ interests while performing.
Estate accountings are essential because they show beneficiaries when executors and trustees are mismanaging or misappropriating the estate’s assets and because they help interested parties prove their cases during estate dispute litigation.
Estate Accounting Applications in Discovery
When your trustee or executor mishandles income, embezzles funds or improperly distributes assets, probate litigation or fiduciary removal proceedings are usually your only remedies for resolution.
Heirs and beneficiaries harmed by a fiduciary’s breach of duty accordingly will retain a Will and Trust dispute attorney in Iowa to file a complaint in district court and serve the sitting fiduciary with a copy of the lawsuit.
Once you’ve properly served the fiduciary, your case enters discovery, a stage where your lawyer hires a certified forensic accountant to analyze your probate or annual trust accounting for any questionable transactions, bad investing or misappropriations.
Your forensic accountant can further investigate whether the fiduciary is observing the terms of the trust agreement or whether he/she has accurately reported the estate asset inventory—important evidence that may help you settle your estate dispute before litigation even begins.
When no accounting exists for discovery analysis, your probate litigation attorney will file a motion in equity to compel the fiduciary to produce a detailed financial picture of your trust or estate.
Estate Accounting Applications in Probate Litigation
In Iowa, interested parties settle ninety percent of Will and Trust disputes during discovery. However, when both parties fail to reach a compromise, the case goes to trial for resolution.
Here, your estate dispute attorney will introduce the forensic accountant’s findings into evidence. The accountant may also provide the court with expert testimony to show the fiduciary committed one of the following intentional/negligent acts during his/her performance:
- Failed to deliver a quality and accurate estate accounting.
- Misappropriated or embezzled estate assets or income.
- Failed to produce a timely estate accounting per state law or the Trust agreement.
- Wasted estate assets or real property.
- Neglected to pay creditors or only partially settled estate debts.
- Failed to distribute estate assets in accordance with the Trust agreement or Will.
- Charged excessive probate or trustee fees to the estate.
- Failed to invest income and real property prudently.
- Commingled estate income with the fiduciary’s private account.
- Failed to take an accurate inventory of estate assets.
Sometimes, we can better understand how estate accountings effect will and trust dispute litigation when we put the theory into context by examining a real case study.
Fiduciary Litigation in Action
While hearing an appeal in 2013, the Iowa Supreme Court reviewed a probate court’s ruling that compelled a trustee to personally pay the plaintiffs $54,120 because she didn’t perform an estate accounting for her sister.
Here, Miller sued Cunningham (her sister) for failing to deliver an estate accounting in a revocable trust where Miller was a named beneficiary. Miller incurred over $50k in attorneys’ fees and expenses while suing the estate, a cause of action that Miller eventually won in the lower courts.
This appeal allowed the Supreme Court to resolve finally whether a beneficiary is due an accounting while the settlor is alive and whether an interested party can sue for attorney fees when compelling financial reporting of a revocable trust.
Miller’s mother executed her revocable trust eight months before her death. At first, Trimble named herself as trustee and the only beneficiary during her lifetime. Trimble later added Miller as a post-death trust beneficiary and appointed Cunningham as trustee to manage her estate both during her lifetime and after her death.
After her mother’s death, Miller sent a formal estate accounting request to Cunningham, asking for a report of estate financial transactions made both before and after Trimble’s passing. Cunningham agreed to perform an accounting for the period only after the mother’s death, consequently declining “to provide an accounting for any time when Trimble was still alive.”
Miller sued to compel fiduciary performance, and she asked the probate court to order Cunningham to personally pay her attorney fees per Iowa Code section 633A.4507.
The lower court found that the law allowed Miller to request an accounting for the period when her mother was alive (when the trust was revocable) but only if she made the request after her mother’s death (when the trust became irrevocable), which is exactly what happened.
The court also ordered Cunningham to reimburse Miller out of pocket for her attorney fees—Cunningham then appealed.
In Justice Waterman’s opinion, the question whether the law entitled Miller to receive an estate accounting while her mother was alive was moot because Miller was not a beneficiary at that time nor did she have any interests in her mother’s estate while her mother was “alive and competent.”
Iowa Trust Code section 633A.3103 further prevents trustees whose interests haven’t yet vested from seeking accountings from revocable trusts, according to the Court, although Justice Waterman held it was unclear whether the Code’s preclusion was lawful.
Upon further review of the attorney fee issue, the Court recognized no prior Iowa court has ordered a trustee “to personally pay a beneficiary’s attorney fees without a finding the trustee breached fiduciary duties, misused trust assets, or committed fraud or other malfeasance.”
The Court accordingly ruled because the purpose of an irrevocable trust is to keep the settlor’s estate affairs private, its trustee owes no accounting duties to interested parties while trusts are revocable and “cannot face retroactive accounting duties upon the settlor’s death.”
Thus, since no fiduciary duty existed for Cunningham to report revocable trust accountings to Miller, the court could not hold the fiduciary in breach of duty, and Trust Code section 633A.4507 that allows plaintiffs to collect attorney fees does not apply.
The Waterman Court subsequently had established new case law in Iowa when it reversed Miller’s lower court rulings.
Executors and trustees hold legal duties to provide interested parties with timely and accurate estate accountings. Heirs and beneficiaries can sue accordingly for breach of fiduciary duty when this doesn’t happen.
Interested parties who sue their fiduciaries must, however, retain an experienced Will and Trust dispute attorney to facilitate their cause of action from start to finish, while keeping in mind that plaintiffs will be responsible for paying their own attorney fees and expenses if they lose their cases.