Many people establish trusts through their Last Will and Testament (“testamentary trusts”). Often establishing trusts is an effective way of ensuring one’s heirs are provided with income while providing checks and balances on the investing and distribution of principal. At the recent deposition of a financial advisor in a trust dispute, there was testimony that a typical inheritance is usually squandered within eighteen (18) months.
I recently encountered an interesting fact scenario, where a client was the primary beneficiary of a trust established by her long-time companion. The decedent provided for others in the trust, yet his companion was always to be paid first. Over approximately the last decade, the trustee (a financial institution) had been making substantial, discretionary payments to individuals under the trust. While these discretionary payments were allowed, my client received none of them, yet was expressly supposed to be the first individual compensated. She retained my office after receiving a letter that the trust would be depleted in a minimum of three years and a maximum of six years.
Understandably, the client was very upset and sought to bring suit for breach of trust and breach of fiduciary duty. Under Florida Statute § 736.1001 (“Remedies for Breach of Trust”), the court may compel the trustee to redress a breach of trust by paying money or restoring property or by other means. Further, § 736.1002 (“Damages for Breach of Trust”), provides that the trustee who commits a breach of trust is liable for the greater of the amount required to restore the value of the trust property and trust distributions to what they would have been if the breach had not occurred, including the lost income, capital gain, or appreciation that would have resulted from proper administration.
However, probate litigation is also subject to the same rules found in civil litigation; specifically, the doctrine of ripeness. Although the bank, by their own admission, said the trust would be depleted in three to six years, the fact that the trust still had funds did not make the matter ripe for judicial determination. So, what does that mean? It means that until the trust is completely drained so that the trustee is no longer able to make the payments, a breach of trust action is not appropriate because the terms of the trust are still being followed.
Does this mean there is no redress? Depending on a client’s need and desire, a petition for trust modification/termination can be a more appropriate vehicle. It also avoids the ripeness defense. Florida Statute 736.04113 (“Judicial modification of irrevocable trust when the modification is not inconsistent with settlor’s purpose”) allows, upon the application of any qualified beneficiary of an irrevocable trust, the Court to terminate the trust in whole or in part because of circumstances not anticipated by the Settlor (e.g., insufficient assets). However, the judicial modification does not afford the recovery of damages as does the breach of trust.
In conclusion, the beneficiary of a trust must decide between watching the trust assets dwindle and wait to see whether payments will be exhausted at a future date or receiving an outright distribution via a trust termination without exacting any measure of damages because technically money is still left in the trust and thus no breach has occurred.