When more than $250,000 was missing from a final trust and estate accounting, a beneficiary objected. But the trial court approved the accounting and closed the estate. A unanimous panel of the Indiana Court of Appeals reversed the trial court and ordered a proper, transparent accounting.
The Indiana Court of Appeals opinion in Montgomery v. Estate of Montgomery elucidated the importance of care and adherence to statutory requirements when preparing trust and estate accountings. The matter involved two sisters, Pamela and Sheri, who were 50/50 beneficiaries under their father’s will and trust instruments. Pamela’s husband, Steve, was the trustee of the trust and the personal representative of the father’s estate.
Sheri, Pamela and Steve all executed a settlement agreement that governed the distribution of trust and estate assets. The agreement, in part, listed 21 items of real and personal property and their known values. For example, at the time of the settlement agreement the trust and/or estate held:
- $213,819 in First Merchant accounts
- $110,200 in Raymond James investment accounts
- $574,753 in other securities
Except for a handful of specific bequests, all assets were to be equally divided between Pamela and Sheri. The settlement agreement further provided that all attorneys’ fees incurred by the parties would be paid by the trust and estate. It also provided that the parties did not release or discharge any claims related to the “rights and obligations created pursuant to this Agreement.” One such obligation was for Steve to file a combined final trust and estate accounting.
Steve filed the accounting, but it had numerous deficiencies. In particular, the accounting listed some – but not all – of the 21 items inventoried in the settlement agreement. For example, it omitted all holdings in securities except for one Raymond James entry. In short, the accounting failed to account for $179,864 in securities alone, and another $91,439 was missing from other accounts. The accounting also did not reflect payment of Sheri’s attorneys’ fees pursuant to the agreement’s terms. Additional deficiencies included:
- It did not contain a beginning balance identifying the assets Steve was initially charged with administering.
- It was undated and did not include an inventory of all assets of a single point in time.
- It failed to show how the real property and personal property were valued.
- It failed to include the number of shares of stock and date of death value of said shares with adjustments.
- It included partial distributions to Sheri and Pamela as “Assets,” and it did not explain how the partial distributions were allocated or valued.
- It did not identify property held by Steve or the assets that had been distributed.
- It was not verified as statutorily required.
Sheri filed objections to the accounting, and the trial court held a hearing. At the hearing, Steve testified that he believed the accounting was accurate and he did not know of any assets that were not represented. He testified that some securities were combined in the entry for the Raymond James account and the rest were liquidated. He did not explain or otherwise account for the cash received from the sale of the securities. Nonetheless, the trial court approved the accounting and closed the estate. Sheri appealed the court’s order.
The Indiana Court of Appeals’ Analysis
The Indiana Court of Appeals started its analysis by setting forth various statutory obligations for trustees and estate personal representatives when preparing an accounting. The court then recounted the numerous deficiencies discussed above. In particular, the court noted that the accounting was unverified, it failed to account for numerous assets, it listed distributions as assets, and a supplemental report showing subsequent distributions was never filed. The Court reversed the trial court’s order, holding “[a] final distribution consistent with the Settlement Agreement should be verified and effected before the proceedings are closed.”
The Court’s decision underscores the importance of transparency and careful accounting practices when serving as a trustee or personal representative of an estate. The person serving in these roles owes a fiduciary duty to the beneficiaries and is potentially exposed to personal liability for misdeeds. Questions on trust or estate administration and disputes should be directed to legal counsel.