Indiana Trust Accounting Disputes and Trustee Recordkeeping Lessons from a Recent Court of Appeals Decision

When a family trust reaches the administration phase, beneficiaries usually care about two things right away. They want to know what assets exist, and they want to know where the money went. An Indiana estate planning attorney will tell you that trustee accounting disputes rarely start with dramatic accusations. They start with missing documentation, unclear trust language, and a trustee who believes a decision was authorized even though a beneficiary reads the trust differently.

A February 9, 2026, Indiana Court of Appeals opinion is a useful example. The dispute involved a beneficiary seeking a statement of accounts and co-trustees asking a court to confirm that a surviving settlor could remove a piece of trust property after the other settlor’s death. The trial court granted summary judgment against the co-trustees. The Court of Appeals reversed and remanded, focusing on how the trust language fit together and how the trust treated tenancy-by-the-entireties property.

The Trust Fight That Landed in Court

The trust was created during a marriage and included real estate held as tenants by the entireties that was later deeded into the trust. After the husband died, a beneficiary filed a verified petition for a statement of accounts. The co-trustees then sought a declaratory judgment that the surviving settlor had authority under the trust to remove the Tennessee real estate from the trust and convey it to herself.

The beneficiary argued that the property remained a trust asset at the time of death and should be part of the remaining trust estate to be distributed according to the distribution provision. The trial court sided with the beneficiary and ordered the property transferred in equal shares among three beneficiaries. The Court of Appeals disagreed with that reading and remanded the case.

The First Takeaway for Trustees

Indiana trustees should expect that a beneficiary’s request for an accounting can arrive early, even in a family administration that feels cordial. The petition for a statement of accounts is a procedural tool that can force transparency. It often becomes the first formal point of conflict, especially when one beneficiary suspects a trust asset was shifted out of the trust, retitled, or treated as “belonging” to one branch of the family.

Trustees protect themselves by running administration like a business process. If a trustee cannot produce records that explain every material decision, a court fight becomes more likely and more expensive. Good documentation also improves settlement odds, since clarity narrows the dispute to interpretation rather than suspicion.

The Second Takeaway for Beneficiaries

Beneficiaries often assume that requesting an accounting is aggressive. It is not. A statement of accounts can be a reasonable step when trust property includes real estate, mixed titling, or complicated marital property history. The February 2026 dispute shows how quickly those issues can lead to sincere disagreement among family members acting in different roles, such as beneficiary, trustee, and surviving spouse.

A beneficiary who raises concerns early, in writing, often increases the likelihood that the trustee will correct course without a long dispute. A beneficiary who waits until assets are transferred may face a harder path, especially if third parties become involved.

How the Court Approached Trust Interpretation

The Court of Appeals reiterated a core Indiana trust principle. Courts interpret trust terms to implement the settlor’s intent and purposes, and when the trust is capable of clear construction, the court applies its clear meaning as a whole rather than lifting one clause out of context.

The court also cited Indiana’s Trust Code rule that the statutory rules apply to implement the trust’s terms and purposes, and that the trust’s terms control unless prohibited by law. In practical drafting terms, that statutory framework raises the stakes on internal consistency. If the trust has a distribution clause that seems to point one way and a property-withdrawal clause that points another, trustees and beneficiaries should expect litigation risk unless the instrument clearly resolves the tension.

Tenancy by the Entireties Property Creates Predictable Confusion

Many Indiana married couples hold real estate as tenants by the entireties. When that property gets deeded into a trust, clients often assume the deed alone answers everything. The February 2026 case shows that the trust language still controls how the property is treated after death and whether it can be withdrawn.

This issue arises most often when a trust seeks to preserve tenancy-by-the-entireties characteristics during life while also creating a distribution plan after the first death. If the trust has language requiring joint consent during both spouses’ lifetimes for withdrawals of entireties property, trustees and beneficiaries will later argue over whether the surviving spouse has unilateral withdrawal authority after the first death, especially if the trust also uses “trust estate” language that defines what counts as distributable property.

Trustee Accounting Duties as a Litigation Avoidance Tool

Trust accounting is not only a compliance obligation. It is a litigation avoidance tool. Even when a trustee believes a withdrawal or retitling is authorized, an accounting that clearly shows what happened, when it happened, and the basis for the decision reduces the chance that a beneficiary frames the act as misappropriation.

A practical accounting approach usually includes an opening inventory, a running ledger of receipts and disbursements, documentation for major transactions, and a clear explanation of changes in titling. Real estate requires extra care, since deeds, tax payments, insurance, and maintenance costs can create confusion about whether the trust or a beneficiary paid an expense and whether reimbursement is required.

Drafting Improvements That Prevent This Dispute

This type of case often reveals opportunities for drafting. A trust that holds or may hold entireties property benefits from explicit language that answers the post-death question directly, rather than leaving it to inference. Trustees and beneficiaries should not have to guess whether a surviving spouse can withdraw a specific class of property or whether it stays in the distributable trust estate.

If the plan expects a surviving spouse to receive a specific property outright, the trust should state that, and the funding process should reflect that intent. If the plan expects equal sharing among children and spouse, the trust should also say that clearly and avoid exceptions that look like hidden carve-outs.

Contact Attorney Burton Padove at Padove Law

If you are a trustee facing a request for an accounting, or a beneficiary concerned about transfers of trust property, early guidance can prevent a family conflict from becoming a court case. For planning, clear drafting and proper trust funding can reduce the odds that an entireties property issue turns into litigation after death. Contact Attorney Burton Padove at Padove Law at (219) 836-2200 to review your trust documents, assess your accounting obligations, and build a practical path forward.