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SECTION 1005. LIMITATION OF ACTION AGAINST TRUSTEE

 

UNIFORM TRUST CODE COMMITTEE

ARTICLE 10

LIABILITY OF TRUSTEES AND

RIGHTS OF PERSONS DEALING WITH TRUSTEE

1. UTC SECTION

1005

2. SUBJECT

LIMITATION OF ACTIONS AGAINST TRUSTEE

3. UTC STATUTE

(a) A beneficiary may not commence a proceeding against a trustee for breach of trust more than one year six months after the date that the beneficiary or a representative ofperson who may represent and bind the beneficiary, as provided in Article 3, was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.

(b) A report adequately discloses the existence of a potential claim for breach of trust if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.

(c) If subsection (a) does not apply, a judicial proceedings by a beneficiary against a trustee for breach of trust must be commenced within five years after the first to occur of:

(1) the removal, resignation, or death of the trustee;

(2) the termination of the beneficiary's interest in the trust; or

(3) the termination of the trust

(c) For purposes of subsection (a), a beneficiary is deemed to have been sent a report if:

(1) in the case of a beneficiary having capacity, it is sent to the beneficiary; or

(2) in the case of a beneficiary who under Article 3 may be represented and bound by another person, it is sent to the other person.

(d) This section does not preclude an action to recover for fraud or misrepresentation related to the report.

4. NATIONAL CONFERENCE
OF COMMISSIONERS ON
UNIFORM STATE LAWS
COMMENTS

The one-year and five-year limitations periods under this section are not the only means for barring an action by a beneficiary. A beneficiary may be foreclosed by consent, release, or ratification as provided in Section 1009. Claims may also be barred by principles such as estoppel and laches arising in equity under the common law of trusts. See Section 106.

The representative referred to in subsection (a) is the person who may represent and bind a beneficiary as provided in Article 3. During the time that a trust is revocable and the settlor has capacity, the person holding the power to revoke is the one who must receive the report. See Section 603(a) (rights of settlor of revocable trust).


This section addresses only the issue of when the clock will start to run for purposes of the statute of limitations. If the trustee wishes to foreclose possible claims immediately, a consent to the report or other information may be obtained pursuant to Section 1009. For the provisions relating to the duty to report to beneficiaries, see Section 813.


Subsection (a) applies only if the trustee has furnished a report. The one-year statute of limitations does not begin to run against a beneficiary who has waived the furnishing of a report as provided in Section 813(d).


Subsection (c) is intended to provide some ultimate repose for actions against a trustee. It applies to cases in which the trustee has failed to report to the beneficiaries or the report did not meet the disclosure requirements of subsection (b). It also applies to beneficiaries who did not receive notice of the report, whether personally or through representation. While the five-year limitations period will normally begin to run on termination of the trust, it can also begin earlier. If a trustee leaves office prior to the termination of the trust, the limitations period for actions against that particular trustee begins to run on the date the trustee leaves office. If a beneficiary receives a final distribution prior to the date the trust terminates, the limitations period for actions by that particular beneficiary begins to run on the date of final distribution.


If a trusteeship terminates by reason of death, a claim against the trustee's estate for breach of fiduciary duty would, like other claims against the trustee's estate, be barred by a probate creditor's claim statute even though the statutory period prescribed by this section has not yet expired.

This section does not specifically provide that the statutes of limitations under this section are tolled for fraud or other misdeeds, the drafters preferring to leave the resolution of this question to other law of the State.

5.COLORADO COMMITTEE
COMMENTS

This section is based in fact on Uniform Probate Code §7-307. This section governs time limits to beneficiaries bringing claims against the trustee (see, §1010). This section codifies the principles of estoppel and laches under common law of trusts. Those who receive reports must initiate a proceeding against the trustee within one year of the date of the report, so long as the report discloses facts related to the claim and notice of the one year to challenge the action. The UTC final draft imposes a five year statute of limitation for breach of fiduciary duty claims. This section also imputes a notice of a claim if the beneficiary knew of facts surrounding a claim or reasonably should have inquired into the existence of a claim but failed to do so, and would estop him from asserting that claim.

During the October 2000 meeting, the Committee recommended that the one year limitation period be reduced to six months (consistent with 15-16-307, C.R.S., accountings), and that the five year limitation period be reduced to three years, consistent with §13-80-101, C.R.S. (breach of fiduciary duty).

At the December 2000 meeting the Committee again reviewed this Section and agreed that the self-executing limitations specified in Section (c) should be deleted. The result of the deletion is Colorado’s general limitations statute applies in the event a situation falls outside of UTC §1005(a).

The Committee discussed whether a three year limitation period would be appropriate if no report contained adequate facts regarding the breach of trust as provided to the beneficiary. Specifically, the Committee questioned whether the current law contained such limitation and, in reviewing §13-80-101, C.R.S., it concluded that no such limitation period existed. Rather, pursuant to §13-80-101, C.R.S., no limitation period commences until such time as "the cause of action accrues." The Committee concluded that recommending adoption of the UTC §1005(c) would be inconsistent with §13-80-101, C.R.S., and also inconsistent with §15-16-307, C.R.S., (which requires a final accounting before a statute of limitations commences). It was further noted that if the beneficiary is a minor, no statute of limitation commences until the minor has obtained the age of majority. After the foregoing discussion, the Committee recommended the adoption of Section 1005 with the following modifications:

(1) Section 1005(a) shall include the word "not" after the phrase, "a beneficiary may";

(2) the one year limitation period in Section 1005(a) is reduced to six months, where a beneficiary or representative of the beneficiary was sent a report adequately setting for the facts constituting the breach of trust claim and informing the beneficiary of the limitation period;

(3) no revision to Section 1005(b) was made; and

(4) Section 1005(c) containing a self-executing five year limitation is deleted. The result of the deletion is that the provisions of §§13-80-101 and 15-16-307, C.R.S., control all circumstances and proceedings regarding the breach of trust claims when Section 1005(a) is not applicable.

The general committee believed it important to add a new section (c) taken from the October 1999 draft regarding the sending of reports to beneficiaries or their representative. In recognition of the "fraud exception," the general committee also believed subsection (d) was appropriate.

6. COLORADO LAW

The Colorado Court of Appeals has consistently held that where the beneficiaries of a trust, after full disclosure, consented to the actions of the trustee, they cannot later bring a claim for surcharge. Beyer v. First National Bank, 843 P.2d 53 (Colo. Appellate 1992). Section 13-80-101, C.R.S., provides: (1) The following civil actions, regardless of the theory upon which suit is brought or against whom suit is brought shall be commenced within three years after the cause of action accrues, and not thereafter: (f) all actions for breach of trust or breach of fiduciary duty. Section 15-10-106, C.R.S., provides that any action for fraud must be commenced within 5 years from the date after the discovery of the fraud.

7. RECOMMENDATIONS

The committee recommends adoption of Section 1005 with the modifications indicated.