Beneficiaries' Right to Trustee's Disclosure: Adamson v. London

Introduction

In Adamson v. London (2023), the California Court of Appeal addressed the rights of beneficiaries seeking disclosure of a trustee's administration records, focusing on the beneficiaries' demand for a tax return. The case stemmed from a family trust dispute where Lauren and Megan Adamson, beneficiaries, requested access to several documents, including the estate tax return of their grandmother, Sharon Adamson Gee.

Background

The trust in question, created in 1985 by Merritt Adamson and his wife Sharon, was divided into two sub-trusts upon Merritt’s death in 1986: the Bypass Trust and the Residuary Trust. Merritt and Sharon's two children, Grant and Leslie, were beneficiaries. Grant’s share of the trust passed to his daughters, Lauren and Megan, after his death in 2013.

Leslie, alongside her children, became co-trustees of the trust after Sharon’s passing in 2018. The assets in the Bypass Trust included interests in several limited partnerships that owned undeveloped land in Malibu, California. Disputes arose when Lauren and Megan discovered promissory notes indicating the Bypass Trust owed over $1 million to the Residuary Trust. This raised questions about the management of trust assets.

Discovery of Trust Documents

In 2019, the Adamson beneficiaries began requesting documentation from the co-trustees regarding the trust’s assets and debts, particularly focusing on promissory notes that had been used to finance development projects on the trust’s properties. The Adamsons contended the notes were outdated and unenforceable under California’s Commercial Code, while the co-trustees argued that payments would only be made when assets were sold.

Despite receiving some documents, the Adamson's sought further information, especially regarding discrepancies in reported debts. The dispute deepened when it was revealed that one of the properties was being rented below market value to one of Leslie's children, further complicating the beneficiaries' concerns about proper trust administration.

Request for Tax Return and Court's Ruling

A key point of contention was the Adamsons' request for Sharon’s estate tax return (Form 706). The co-trustees had already provided a partial return during settlement negotiations in a related proceeding but withheld further disclosure, citing tax return privilege.

In response, the Adamson's petitioned the probate court to compel the full release of Form 706, which they argued could reveal vital information about discrepancies in trust administration. The probate court granted the request, reasoning that public policy favoring transparency in trust management outweighed the privilege of tax return confidentiality. Specifically, the court found that Sharon’s dual role as trustee and co-beneficiary required disclosure to ensure the beneficiaries' rights were protected.

Appeal and Final Decision

The co-trustees appealed, arguing that the probate court erred in ordering the tax return's disclosure. They claimed that the tax return was privileged and unrelated to the current dispute over the promissory notes. However, the appellate court affirmed the lower court’s decision, emphasizing the trustee's duty to provide information to beneficiaries. The court cited Schnabel v. Superior Court (1993), a case establishing a public policy exception to tax return confidentiality in probate matters.

The appellate court remanded the case to the probate court for an in-camera review, allowing the court to determine whether the entire tax return or only specific sections (such as Schedule F) should be disclosed.

Conclusion

Adamson v. London underscores the balance between confidentiality and transparency in trust administration. The ruling affirms the beneficiaries' right to access documents necessary for assessing trust administration, even when those documents involve privileged tax returns. Trustees must uphold their duty of full disclosure, particularly when conflicts of interest and fiduciary duties are in question. This case serves as a reminder that the courts will prioritize transparency to protect beneficiaries' rights.