Alden v. Alden: Lessons on Vermont Trust Code

Article written by John C. Newman, Esq.
Posted on Sep 08, 2011

(This article was originally published in the Summer 2011 issue of the Vermont Bar Journal.)

            To my knowledge, Estate of Nancy B. Alden v. Julia Dee and Todd Alden, et al.[i] is the first case in which the superior court has ruled on trust administration issues following the adoption of the Vermont Trust Code (hereafter “VTC”). Five out of six issues concerning trust administration were decided on cross motions for summary judgment by a published decision on March 4, 2010. In late May 2010, a final count in the case was dismissed, and a notice of appeal on all summary judgment counts was filed on May 28, 2010. On July 8, 2011, a unanimous Supreme Court affirmed Judge Wesley’s holdings in the superior court action,[ii] essentially on the simple holding that all relevant causes of action were filed beyond the internal time period for bringing a claim in the trust agreement or beyond the statute of limitations set in the Vermont Trust Code.[iii]

            This article will focus primarily on Judge Wesley’s decision because it contains the more interesting discussion of Vermont trust law. The article will conclude with a few summary points for consideration by the trust and estate bar.

 Procedural Background

            Reduced to its simplest configuration, the Alden case involves allegations by two beneficiaries of the 1973 William C. Alden Trust (the “Trust”) that Nancy B. Alden, wife of William Alden and one of three co-trustees of the Trust, committed one or more breaches of her fiduciary responsibility as trustee.

            The Trust at issue in the case was a revocable trust settled by Nancy Alden’s deceased husband and funded by his pour-over will in 1982 or 1983. Although the 1973 Trust was drafted by a Massachusetts lawyer when William Alden was a resident of Williamstown, Massachusetts, Mr. Alden moved to a farm in southern Vermont during a short period. For some reason (perhaps to facilitate funding the Trust with Vermont real property), the Massachusetts attorney amended the terms of the Trust to provide that “the laws of the State of Vermont shall govern the interpretation of this instrument.”

The Trust was a typical Massachusetts trust for a high-net-worth individual. William Alden appointed his wife as a co-trustee, with his brother-in-law and an independent financial institution to act as the two other co-trustees. After William Alden’s death, the terms of the trust specified that the trustees could make distributions to a group of beneficiaries (Nancy Alden and the five William Alden children) “for their comfort, support, education, and happiness” [emphasis added].

Under longstanding Internal Revenue Service regulations, if a co-trustee is able to distribute principal of a trust to herself and such distribution is not restricted by an ascertainable standard based on health, education, maintenance, and support, the co-trustee/beneficiary is deemed to own the corpus of the trust for federal estate tax purposes unless one of the other co-trustees is a person with an adverse interest. To quote the Treasury Regulations, “[a] power to use property for the comfort, welfare or happiness of the holder of the power is not limited by the requisite standard.”[iv] The Trust at issue allowed Nancy Alden to distribute principal to herself for her “happiness,” and no co-trustee had an adverse interest in the corpus of the Trust. As such, certain of Mrs. Alden’s attorneys concluded that there was a substantial risk that the corpus of the Trust potentially could have been included in Nancy Alden’s federal gross taxable estate at her death were Vermont law to be found to apply to this power.

The Massachusetts Supreme Judicial Court (the highest court in legal matters in the state of Massachusetts) has held that, when a beneficiary is also a trustee holding such a power as that created by the terms of the William Alden Trust, the trustee is bound by Massachusetts fiduciary law principles so as to restrict distributions to herself pursuant to an ascertainable standard based on health, education, maintenance, and support.[v] Expressed more directly, the Massachusetts Supreme Judicial Court saves Massachusetts trust scriveners from the IRS regulations by imposing an ascertainable standard on powers held by trustee/beneficiaries of trusts subject to its rules of construction.

            The Vermont Supreme Court had not ruled on whether it would follow Massachusetts in so restricting the co-trustee/beneficiary under such trust arrangement by the time the 1973 Alden Trust was terminated in a separate action from that discussed here. The Vermont Supreme Court now is not likely to have to so rule after the adoption of the VTC because its savings clause (section 814(b)(1)) makes such a beneficiary trustee’s power over a trust for her benefit subject to an “ascertainable standard,” as a default rule.

            Because she had been advised by her Massachusetts attorney on what Judge Wesley’s decision termed the Estate Tax Problem and for other reasons, Nancy Alden hired the Kenlan Schwiebert law firm to represent her with regard to her beneficial interest in the Trust and to advise her with regard to certain fiduciary issues. In the context of this representation, the financial institution that acted as a co-trustee and the brother-in-law/trustee decided:

• to increase trust distributions to Nancy Alden for her support;
• to initiate a court action to reform the Trust to eliminate the Estate Tax Problem;
• to distribute a one-third interest in land held by the Trust to Nancy because she owned the other two-thirds and could thus sell or develop the land and thereby better contribute to her own support; and
• to increase Trust distributions again so that Nancy Alden could afford to make contributions to an Irrevocable Life Insurance Trust (“ILIT’) to pay for premiums on a life insurance policy that could cover the potential federal estate tax costs of the Estate Tax Problem until the Trust was reformed.

            Other than urging, as a beneficiary, that these distributions be made to her, Nancy Alden did not participate in making any of these fiduciary decisions as a trustee of the Trust. These fiduciary decisions did not give rise to substantial litigation until the corporate fiduciary decided to resign and one of the complaint/child-beneficiaries decided not to consent to the trustee replacement. This lack of consent resulted in a court action in Vermont to release and replace the corporate fiduciary. Nancy Alden moved to Vermont in 2007, and so the Vermont courts took jurisdiction over the Trust.

            After releasing the corporation fiduciary and the independent individual fiduciary (who had replaced the brother-in-law trustee), two of William Alden’s children from a prior marriage filed a counter claim alleging that the above distributions to Nancy Alden constituted a breach of her fiduciary responsibility. Perhaps because the counter claimants had released the two independent trustees before filing their counter claims, the counter claim also alleged that Nancy Alden had fraudulently failed to disclose to the beneficiaries facts that could have led to the discovery of counter claims against these two independent trustees.

            After extensive discovery, the parties filed cross motions for summary judgment, and Judge Wesley’s rulings on these motions comprise the bulk of his decision.

            Additional facts will be discussed below, as relevant, and the entire case should be read to obtain the full flavor of the complex legal and fiduciary issues that may arise in such cases.[vi] As an example of the complexity of the legal issues involved, the counter claim alleged that Nancy Alden’s 1982 purchase of a two-thirds interest in land behind her personal residence represented a trust opportunity that she should have presented to the Trust for acquisition. The Court found this claim clearly beyond any statute of limitations, but we discuss this aspect of the case in detail because of the light it sheds on the application of the VTC to post-enactment allegations of breaches of the duties of loyalty and care.

 Statute of Limitations

            The first issue confronting Judge Wesley in making his legal analysis on the cross motions for summary judgment was what statute of limitations applied. The court had essentially four options before it.

1. The sixty-day internal statute of limitations written into the actual trust instrument. As the court pointed out in its footnote 8, “[t]he trust requires that beneficiaries make any objections to trust distributions within sixty days of receiving an accounting.”
2. The one-year statute of limitations contained in the Vermont Trust Code (§ 1005(b)). Under this provision, if a beneficiary receives a report adequately disclosing a potential claim, the beneficiary has one year to commence suit.
3. The general three-year statute of limitations in the Vermont Trust Code, which applies when the beneficiary has not received a report adequately disclosing a potential claim (§ 1005(c)).
4. The general six-year statute of limitations that applied to an action for breach of fiduciary responsibility under Vermont law when no other statute of limitations was applicable. 12 VSA § 511.

In ruling on this issue, Judge Wesley stated:

"Though it became effective after Defendant’s counterclaims were filed, the VTC applies retroactively to this litigation, unless such application would 'prejudice the rights of the parties'.” 14A VSA §1204(a)(4).[vii]

In finding that the application of the VTC’s statute of limitations to the Alden case would prejudice the plaintiffs, the court reasoned that, the sixty-day internal statute of limitations in the trust instrument would apply to prevent the step-children from making a claim against their step-mother as trustee “to the extent that any of the claims amount to an objection to Trust distributions”[viii] [emphasis added].

            The court then decided that it would apply the six-year statute to claims accruing before the VTC was adopted provided that the claims did not amount to an objection to a Trust distribution. As such, the six-year statute was applied to the fraud claims.

            This reasoning represents a significant reading of Vermont trust law as it existed prior to the adoption of the VTC. This judicial ruling also indicates how at least one Vermont superior judge views the manner in which Vermont trust law was changed by VTC adoption, and how the VTC transition rule (14A VSA 1204(b)) will be applied to a case that straddles adoption.

            The main points to consider from this holding are the following.

            1. One year statute of limitation for objection to a trust distribution is a mandatory rule. Most VTC rules are merely default rules. Under VTC section 105(a), the VTC “governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary” unless the VTC rules are overridden by the terms of the trust. Certain rules are mandatory. The twelve mandatory provisions of the VTC are enumerated in VTC section 105(b).

            In terms of an internal statute of limitations written into a trust document, the court found that the internal limitations period will no longer apply in Vermont after the adoption of the Vermont Trust Code. In its footnote 8, the decision reads 14A VSA 105(b)(10) (mandatory VTC rule on periods of limitation) together with 14A VSA 1005(b) (limitation on actions against trustee). As a result, the court held that the one-year limitations period in §1005(a) that protects a trustee from suit one year after it has provided to a beneficiary “a report that adequately discloses the existence of a potential claim for breach of trust” is a mandatory rule that may not be over-ridden by the terms of the trust.

            2. Pre-enactment claims subject to internal statute of limitations. As has been explained, the Trust contained an internal statute of limitations in its section on accounts (section XI), that stated that any beneficiary shall file written objection to any item on a trustee accounting within sixty days of the mailing of the accounting, and specified “[i]n the absence of such objection all beneficiaries, whether or not in being or ascertained, shall be barred from objecting thereto.” The court upheld the application of this internal statute of limitations to all items reported on a trustee accounting whose statute of limitations had accrued prior to commencing the trustee release and replacement action. The court held that the plaintiffs (counterclaim defendants) would be prejudiced by the VTC one-year statute of limitations because it extended the period during which the beneficiaries could complain on a distribution reported on a trustee report.[ix]

            3. General six-year statute of limitations. The court found that the fraud claim made by the counter claimants was an independent cause of action that was not covered by the post-enactment one-year statute of limitations on causes of action arising from items on a trustee report or into the post-enactment three-year statute of limitations period that applies to a cause of action for breach of trust that is based on an occurrence that was not adequately disclosed by the trustee. Such fraud actions are common law actions not within the Trust Code.

            4. Significance of “discovery rule.” As the court succinctly states the discovery rule, “[a] cause of action accrued when the plaintiff discovers, or should have discovered, both the injury and its cause.”[x] Trust administrators should read the actual facts of the Alden case with care. The trustee quarterly reports that the court refers to in its decision are the typical printed accounting (much like a monthly securities account statement) that are supplied by the m

            5. Breach of fiduciary responsibility law. The court decided the issues concerning claims of excess distributions based on the internal statute of limitations in the trust instrument and based on facts determining when the cause of action accrued under the discovery rule. Despite having found that the claims were time barred, the court proceeded to decide whether or not the co-trustees (who authorized the distributions complained of) breached their fiduciary responsibility.[xi] Trust administrators might well learn significant lessons from the court’s application of classic breach-of-fiduciary liability law to the distributions at issue.

 Duty of Loyalty

            The court found that the counterclaimant’s allegation concerning Nancy Alden’s purchase of a two-thirds interest in land behind her home was barred by the six-year statute of limitations. As discussed above, the court then proceeded to issue a written decision on the underlying issue because the counterclaimants had alleged that they were not on notice of sufficient facts to allow the statute of limitations to begin to run and because the issue had been fully briefed on summary judgment with all of the facts necessary for a determination of the issue.

            Succinctly stated, the counterclaimants alleged that Nancy Alden purchased the two-thirds interest in the undeveloped land behind her home in her individual capacity while she, as a co-trustee, held a one-third interest in the same land.[xii] The counterclaimants contend that they were damaged in their capacity as beneficiaries because Mrs. Alden did not purchase the land in her capacity as co-trustee thus allowing this opportunity to increase the corpus of the Trust. The legal basis for alleging actionable damage was that Mrs. Alden breached her duty of loyalty as co-trustee. This is a type of “trust opportunity” doctrine that is akin to the corporate opportunity doctrine that prohibits the member of a corporate board from taking a business opportunity that should inure to the corporation.

            Even though the cause of action had accrued prior to the adoption of the Vermont Trust Code, the court relied for its analysis on the VTC standards with regard to this cause of action as interpreted through other authorities. Because the court was analyzing the parties’ behavior through these other authorities, the court cannot be accused of applying the Trust Code retroactively to their behavior to the prejudice of the parties. The court would have looked to these supplemental authorities in any case to find Vermont law in the absence of applicable decisional law of the Vermont Supreme Court.

            In this instance, the court cited VTC section § 802(a), as requiring a trustee “to administer the trust solely in the interest of the beneficiaries.” The court then went on to find that the VTC section 802(b) adopts a “no further inquiry rule” so that when a trustee engages in a transaction that represents a conflict of interest between the role of the person as a trustee and the person’s individual interests, a beneficiary harmed by the transaction may sue to void the transaction regardless of whether or not it was entered into in good faith by the trustee or is fair to the beneficiaries. The court additionally found that this no further inquiry rule may be overridden when the settlor approves a conflict of interest through the structure of the trust instrument itself. In so finding, the court’s analysis went beyond the explicit terms of the six statutory exceptions to the no further inquiry rule enumerated in section 802(b). Through an analysis of the Official Comment to this rule of the Vermont Trust Code, the court held that the trustee may occupy conflicting positions in handling the trust “where the trust instrument contemplates, creates, or sanctions the conflict of interest.”

            The court did not stop at the Official Comment to the Vermont Trust Code, however. It proceeded to bolster its holding by citing the Restatement (Third) of Trusts §79, cmt. (c)(2) and a 1993 Illinois appellate decision (Dick v. Peoples Mid-Ill. Corp.[xiii]). In its footnote to this citation, the court states an important point for trust administrators seeking to find the law on points that are unclear under the new VTC.

The Vermont Trust Code specifically dictates that it is to be supplemented by common law, including prior case law within the State as well as more general sources including the restatement. 14A VSA § 106. Thus, in interpreting the Code, the court will look first to Vermont common law. However, in the absence of Vermont case law on many of these issues, the court will, as the parties have done, use the restatement of trusts and common law of other states in order to guide its interpretation.[xiv]

            Consistent with this citation of the Vermont Trust Code and the U.S. common law, the court found that the trust opportunity doctrine would not apply to Nancy Alden under the “no further inquiry rule” because she had been put in an inherently conflicting position by the settlor of the Trust. The court then proceeded to apply a modified trustee-beneficiary duty of loyalties standard. Based on this modified standard and the particular facts as the court found them (in particular that the Trust was not funded when Mrs. Alden acquired the two-thirds interest), the court then held that Nancy Alden, by acquiring property that did not belong to the Trust, did not, in her individual capacity, seize an opportunity properly belonging to the Trust.

            The significant aspects of this decision for trust administration in Vermont are the following.

1.         Vermont Trust Code as Pre-Adoption Law. As is well understood by trust administrators and their lawyers, prior to the adoption of the Vermont Trust Code, the case law of the state of Vermont was sparse on most issues of trust administration. Post-adoption and even for causes of action accruing prior to the VTC effective date (1 June 2009), parties before the Vermont courts are likely to find superior judges citing to the Vermont Trust Code as a source of pre-adoption law when no precedential decision exists on the issue before the court. Faced with the absence of a prudential decision pre-adoption, the court found that the no further inquiry rule was a feature of Vermont trust law prior to the enactment of the Vermont Trust Code.

2.         No Further Inquiry Rule. Post-enactment, the “no further inquiry rule” is certainly a feature of Vermont Trust Law. As such, Vermont courts are likely to impose a rigid bar against conflict of interest transactions, and professional trust administrators should read VTC section 802 closely to determine what conflict of interest transactions are prohibited, what conflicts of interest may be authorized by the statute and its commentary, and what conflicts of interest are subject to a modified duty of loyalty. Further trust administrators may look to the Restatement (Third) and U.S. common law on points not sufficiently covered by the VTC and its commentary.

3.         Duty of Loyalty Not a Mandatory Rule. Section 105(b) (the list of “mandatory rules”) provides that “a trust and its terms be for the benefit of its beneficiaries” (VTC §105(b)(3)). Faced with this language, the court did not find that the duty of loyalty (VTC §802(a)), which provides that a trustee “shall administer the trust solely in the interest of the beneficiaries,” is covered by the terms of section 105(b)(3). The legal fact that the duty of loyalty is not a mandatory rule of the Vermont Trust Code is certainly borne out by the Official Comment, which states the following:

 "For example, it is not uncommon that the trustee will also be a beneficiary. In such cases, Settlors should be advised to consider addressing in terms of the trust how such conflicts are to be handled."[xv]

As such, the Official Comment takes the position that the section 802 duty of loyalty is a matter that is not a mandatory rule, and the manner in which the duty of loyalty will apply may be articulated by the terms of the trust. This is a significant holding under the new VTC, and a careful trust scrivener should be able to help trust administrators in handling issue of trustee investments when a conflict of interest is likely or possible.

Duty of Care

            In alleging that Nancy Alden breached her fiduciary responsibility in failing to purchase for the trust, when she was acting as co-trustee, a two-thirds interest in the land behind her home, the counterclaimants alleged that she breached her duty of care. As was discussed above with regard to the duty of loyalty, post-VTC enactment, a superior judge will look at the Vermont Trust Code, the Restatement (Third) of Trusts and the general U.S. common law to determine the law. The following is the manner in which Judge Wesley defined the duty of care imposed on trustees:

Plaintiffs also argue that [counterclaimants] have not produced evidence to demonstrate that Nancy’s purchase of the two-thirds interest was a breach of the duty of care. A trustee is required to administer the trust as a reasonable person would, and to invest and manage the trust assets as a reasonably prudent investor would, “by considering the purposes, terms, distribution requirements, and other circumstances of the trust.” 14A V.S.A. §§ 804, 902. In satisfying these duties, the trustee must exercise reasonable care, skill, and caution.” Id. The trustee’s conduct is to be judged based on the circumstances of the time of the action, “not with benefit of hindsight or by taking account of developments that occur after the time of the action or decision.” Restatement (Third) of Trusts § 77, cmt. a; see also 14A V.S.A. § 905 (“Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of the trustee’s decision.”); Estate of Pew, 655 A.2d 521, 543 (Pa. Super. Ct. 1994). Because the standard of prudence is based on the purposes and circumstances of a particular trust, at a particular time, whether the duty has been breached is necessarily a trust-specific inquiry.[xvi]

            In applying the standard to a trustee’s failure to purchase raw land, the court held that, even assuming the trust had the $56,000 needed to invest in the purchase of the two-thirds interest, the decision would have required either a speculative gamble that short- term gains might materialize, or the election of a long-term strategy involving a lengthy commitment of capital. Judge Wesley then held that Mrs. Alden did not breach her fiduciary responsibility in failing to commit trust funds to the purchase of this particular asset. Trust administrators in Vermont should read with satisfaction the court’s principal holding on this point, “the fact that Nancy considered the property a sound investment for herself does not mean that it was an equally sound investment for the trust.”[xvii]

Trustee’s Duty to Disclose

            The counterclaimants complained that Nancy Alden, as co-trustee, participated in the distribution to herself of property that constituted breaches of her fiduciary duty by both Mrs. Alden and the co-trustees. As discussed above, the court found that the sixty-day internal statute of limitations applied to these distributions, and hence if they were properly disclosed to the complaining beneficiaries, the statute of limitations had already run when the counterclaimants raised their claim. The counterclaimants attempted to avoid this result by alleging that Mrs. Alden breached her duty to disclose. As a factual matter, the court found that it was “undisputed that the 2001 and 2002 accountings listed these distributions to Nancy and that they were received by the defendants.”[xviii]

            The counterclaimants asserted that they did not have material facts necessary to understand the accountings, and that the failure to disclose constituted breach of the Nancy Alden’s duty to disclose. Here again, the court cited to the Vermont Trust Code as well as to the Restatement, even though the claim accrued prior to VTC adoption.

Defendants construe the trustee’s duty to disclose described in 14A V.S.A. § 813 and Restatement (Third) Trusts § 82 too broadly. These sections impose a duty to disclose information about trust assets to the beneficiaries, to the extent necessary for the beneficiaries to protect their interests. 14A V.S.A. § 813(a) (“A trustee shall keep the qualified beneficiaries…reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.”) It is not a blanket requirement to inform the beneficiaries of every aspect of administration of the trust, but only where there is a significant transaction that will affect their interests or a request for information from the beneficiaries. See 14A V.S.A. § 813, Official Comment; Restatement (Third) Trusts § 82, cmt d.[xix]

            Based on this discussion of the law, the court found that the typical trustee reports from a corporate fiduciary were sufficient to put the beneficiaries on notice of the increased distributions to Nancy and of the distribution of a one-third interest in the raw land behind her house. The court found that these accountings were all that were reasonably necessary to protect the beneficiaries’ interests and that if the beneficiaries found these items on the accounting caused them concerns they had a duty to inquire further.

Reformation Action

            The court found that the counterclaimants’ allegation that Mrs. Alden breached her fiduciary responsibility by engaging in an unsuccessful reformation action in Massachusetts was subject to the sixty-day internal statute of limitations because the issue involved the distribution of trust funds. The court then went on to decide the underlying issue of whether a breach of fiduciary responsibility occurred because of the manner in which Mrs. Alden, as co-trustee, conducted the reformation action.

            To summarize a rather long discussion by the court, the most important point for trust administrators is the confirmation that trust administrators may rely upon competent legal advice in making decisions on complex issues of law.

            Judge Wesley’s decision also should be read closely for its additional legal guidance in terms of how a fiduciary might protect itself against a claim of breach of fiduciary responsibility in handling complex legal issues that are beyond the ken of most beneficiaries. As the court stated, for example, “the trustees took affirmative steps to ensure that the beneficiaries had enough information to protect their interests by offering to pay for Defendants’ consultation with their own attorneys to satisfy themselves that the reform action was necessary and proper.”[xx]

Supreme Court Decision

            After summarizing the salient facts of the case, the Supreme Court began its decision by disposing of the allegation by the counter-claimants that Nancy breached her fiduciary responsibility by purchasing in 1982 a two-thirds interest in the land behind her home in which the she already owned a one-third interest as trustee. The Supreme Court clearly found this time-barred because Nancy herself had informed the counter-claimants in a letter of 1993 that she owned the two-thirds interest and wanted to obtain the remaining interest from the Trust. The Supreme Court expressed this holding as follows.

Because they were on notice as of September 13, 1993, that Nancy had purchased the two-thirds interest in the property, under the applicable six-year limitation period, their claim of breach of fiduciary duty was time-barred and summary judgment was appropriately granted to the Estate on this claim. A cause of action accrues when the plaintiff discovers, or should have discovered, both the injury and its cause. Pike v. Chuck’s Willoughby Pub, Inc., 2006 VT 54, ¶ 14, 180 Vt. 25, 904 A.2d 1133; Univ. of Vermont v. W.R. Grace & Co., 152 Vt. 287, 289-90, 565 A.2d 1354, 1356 (1989). Specifically, the claim accrues:

upon the discovery of facts constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead to the discovery. Thus, the statute of limitation begins to run when the plaintiff has notice of information that would put a reasonable person on inquiry, and the plaintiff is ultimately chargeable with notice of all the facts that could have been obtained by the exercise of reasonable diligence in prosecuting the inquiry.

Kaplan v. Morgan Stanley & Co., 2009 VT 78, ¶ 7, 186 Vt. 605, 987 A.2d 258 (mem.) (quotation omitted); see also Turner v. Roman Catholic Diocese of Burlington, Vermont, 2009 VT 101, ¶ 50, 186 Vt. 396, 987 A.2d 960 (applying “discovery rule” standard). [xxi]

            This language sets forth a classic description of the discovery rule for the analysis of the statute of limitations. The counter-claimants attempted to circumvent their obligation to inquire once on notice by alleging that Nancy Alden concealed material facts concerning her ownership of the land. They argued that they had a right to rely on Nancy’s duty as trustee “to look after their interest.” The Supreme Court found that his reliance “made no sense as they admit they distrusted” Nancy.[xxii]

            The Supreme Court also had little problem upholding Judge Wesley’s decision that, because the trust distributions to Nancy Alden of which counter-claimants complained were well beyond the internal statute of limitations of sixty days mandated by the trust agreement, the counter-claimants claims on this issue were time barred.

            Likewise, the Supreme Court found that allegations of fraud and fraudulent representation did not save the counter claimants from having run over the statute of limitations because no such fraud or fraudulent misrepresentation was committed by Nancy or her attorneys. The Court found that the agreed facts supporting the cross motions for summary judgment did not contain facts showing fraudulent misrepresentation or harm cause by misrepresentation.

            For representatives of beneficiaries, the significant aspect of the Supreme Court’s holdings on these issues is the attribution of representations of Nancy Alden’s attorneys to her personally.[xxiii] This attribution could mean that fraud and fraudulent misrepresentation claims could be expanded to include not only the trustee but the attorneys who acted for the trust.

            In this regard, the decision to find that no fraud or fraudulent misrepresentation was committed was bolstered by the fact that for Nancy Alden to be accused of fraudulent concealment, she had to have had a duty to disclose. The Supreme Court found that she had no such duty.[xxiv]

 Summary Points

            The Alden decisions should be read by any attorney representing or intending to represent trustees, beneficiaries, or drafting trusts. These decisions are the first complete analysis of the issues covered under what is now the Vermont common law and Vermont statutory trust law. In the author’s view, the trust and estate bar might consider the following as the lessons to be derived from these decisions.

            1. Discovery Rule. As in any case, when a trust beneficiary calls your law office to seek representation, once a conflict check has come back negative, the attorney’s first duty should be to ascertain the facts necessary to determine the statute of limitations applicable to the prospective client’s claims and determine whether the case is viable or not. If the case is viable, the end point for the statute of limitations should be determined, and a decision made expeditiously whether to take on the matter or send the matter back to the prospective client so she can find another attorney. The statute of limitations is only one year when a trustee report has been provided, and the Alden decisions make it clear that the discovery rule will not allow the one-year period to be expanded if the client reasonably was on notice of a claim.

            2. Statute of Limitations Exceptions. The statute of limitation might be a weak defense when the facts indicate egregious violations of legal rules. As can be seen in Judge Wesley’s decision, even though he found that the claims against Nancy Alden were out of time, the majority of his decision focused on whether Nancy violated her fiduciary duties. Judges faced with “bad facts” of fiduciary breaches might well be inclined to focus on those issues that would allow the statute to remain open that were raised in the Alden decisions—fraud and fraudulent misrepresentation. Succinctly stated, an errant trustee who relies simply on the statute of limitations for its defense likely takes the risk that a judge reviewing its behavior will open the door to hearing the claims based on those “bad facts.” In the Alden decisions, both courts found that the trustees who made the fiduciary decisions (and who had been released by the counter-claimants at the beginning of the litigation) made independent fiduciary decisions. For example, the counter claims tried to allege bad facts by citing to the extensive attorney correspondence files that they discovered from Nancy’s attorneys.  These “facts” did not save the case from being time barred.  According to the Supreme Court, “the court below correctly identified these efforts by Nancy’s attorneys [to make the distributions complained of, ed.] as strategic ideas to correct the estate tax problem to benefit the Trust beneficiaries and to provide distributions for Nancy’s necessary support.”[xxv]

            3. Joint Representation of Married Couples. Although the author is not aware of any court decision that has so found, the author assumes that the standard of practice in Vermont is to permit joint representation of married couples in estate planning matters. As is evident from the Alden decision, in a second marriage situation, the estate planning decisions made by the married couple in conjunction with, and implemented by, the estate planning attorney may be questioned by one or more of the spouse’s children after their parent’s death. Many attorneys rely on their written waivers of conflict to protect them from such claims. Nevertheless, when considered in the harsh light of litigation after the death of one of the spouses, the attorney’s decisions on drafting the estate documents,  funding the estate plans (either using trusts or through other probate avoidance devices), and helping the surviving spouse administer the decedent spouse’s trust may be criticized for a number of reasons, and in particular if the decedent spouse  received less than his or her spousal share or the children receive less than their shares under the laws of intestacy. At that point the decedent spouse is no longer available to explain the decisions that were made, and the  attorney’s emails, correspondence, and funding file may be the only source of evidence. Vermont trust and estate attorneys representing married couples may wish to review their situation in light of the standards of practice for joint representations of married couples seeking a divorce. To a judge or jury a fully-funded estate plan may look more like a divorce than the drafting of reciprocal wills. We are not convinced that the attorney’s waiver language will provide adequate protection. Attorneys representing trustee/beneficiaries may wish to consider whether and to what extent they have an attenuated fiduciary responsibility to the other beneficiaries of the underlying fiduciary arrangement.

                        4. Other Lessons. We recommend that Vermont trust and estate lawyers and trust administrators read the entire Alden decisions because they contains points not discussed in this necessarily short précis. As the first decisions in Vermont on a complex trust matter after VTC enactment, the decision does indicate the manner in which at least one superior judge viewed pre-enactment and post-enactment Vermont trust law. In this regard, attorneys should note that, post-VTC adoption, the probate division of the superior court has exclusive jurisdiction over cases brought by beneficiaries and trustees concerning the administration of trusts.^[xxvi] The next Alden-type case will be heard in the probate division.

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