“The trust of the innocent is the liar’s most useful tool.”  Stephen King

Our firm is contacted by many trust beneficiaries who have never received a trust accounting, and they are not aware of the fiduciary duties the Trustee of the trust has to the trust beneficiaries.  Often, the trust beneficiaries place faith and trust in the Trustee to administer the Trust in accordance with the law and what is morally correct.  They are surprised to find that the Trustee of a Trust has specific fiduciary duties to all of the beneficiaries of the trust, which include, but are not limited to the following:

1)     Under Florida law, a trustee has a duty to administer the trust in good faith, in accordance with the terms and purposes of the trust, and in the interests of the beneficiaries pursuant to Fla. Stat. § 736.0801.

2)    The Trustee owes the trust beneficiaries a duty of loyalty to administer the Trust “solely in the interests of the beneficiaries” pursuant to Fla. Stat. § 736.0802.

3)    The Trustee owes the trust beneficiaries a duty to “act impartially in administering the trust property, giving due regard to the beneficiaries’ respective interests” pursuant to Fla. Stat. § 736.0803.

4)    Under Florida law, a trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distribution requirements and other circumstances of the trust, and shall exercise reasonable care, skill and caution.  Fla. Stat. § 736.0804.

5)    Under Fla. Stat. §736.0809, the trustee should take reasonable steps to protect the trust property and assets. 

6)    Under Fla. Stat. § 736.0806, a trustee who has special skills or expertise, or is named trustee in reliance on the trustee’s representation that the trustee has special skills or expertise, shall use those special skills or expertise.

7)    The Trustee owes a duty to keep the beneficiaries of the trust reasonably informed about all monies, funds, assets and personal property that came into his possession as Trustee, and which were distributed, as well as to account for all assets, income, expenses, gains or losses of the Trust pursuant to Fla. Stat. §§ 736.0810, 736.0813 and 736.08135.

8)    The Trustee has a duty to provide the trust beneficiaries with relevant information about the assets and liabilities of the Trust and the particulars relating to the administration of the Trust pursuant to Fla. Stat. § 736.0813(1)(e ).

9)    The Trustee has a duty to enforce claims, to defend actions, to preserve Trust property, and to exercise reasonable care and skill in administration of the Trust pursuant to Fla. Stat. §§ 736.0811 and 736.0816.

10) The Trustee has a duty to take reasonable steps to take control of and protect the trust property pursuant to Fla. Stat. § 736.0809.

11)   The Trustee has a duty to inform each of the trust beneficiaries and account for the assets and liabilities of the trust and for the particulars relating to the trust administration in a trust accounting at least on an annual basis and on the termination of the trust or on change of the Trustee pursuant to Fla. Stat. §§ 736.0813 and 736.08135.

Because the Trust document may include language that specifically states that a trust accounting is to be prepared by the Trustee and given to the trust beneficiaries at certain intervals, and Florida Law also states that the trustee must provide the trust beneficiaries with a trust accounting at least annually, a trust beneficiary should seek competent counsel to review the actual Trust document, in order to ensure that the trust beneficiary is receiving the appropriate trust accountings and information pursuant to the Florida Statutes and possibly the language of the Trust document. 

“A Trustee is held to stricter morals than that of the marketplace; not honesty alone, but the punctilio of an honor the most sensitive, is the standard of behavior.”  Searcy, Denney, Scarola, Barnhart & Shipley, P.A. vs. Scheller, 629 So.2d 947 (Fla. 4^th DCA 1993) citing to Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928).  Also, see Fla. Stat. § 736.0806.  The trustee must be impartial when dealing with conflicting equitable interests of beneficiaries; therefore, a trustee must deal impartially with trust beneficiaries, treat them even-handedly, and act in the best interest of the trust as a whole.  Friedman v. Friedman, 844 So.2d 789 (Fla. 4^th DCA 2003); Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir. 1984), Fla. Stat. § 736.0803.

If the Trustee has breached any of their fiduciary duties to the trust beneficiaries, they could be held accountable individually for these breaches of trust through intentional conduct, negligent conduct, or reckless indifference conduct.  Harding v. Rosoff, 951 So.2d 912 (Fla. 4^th DCA 2007).  It is imperative that prompt action is taken to retain a competent attorney for their review of the Trust document and estate planning documents to determine if the necessary grounds exist to file an action in a timely manner against a trustee for any breaches of trust committed by the Trustee of the trust.  

If you are a trustee who would like advice about serving as trustee or a beneficiary concerned about a trustee’s duties to you, please call the attorneys at Adrian Philip Thomas, P.A. for a free consultation.

In trust litigation a dispute between a beneficiary and the trustee of a trust is not uncommon.  Florida law provides that a trustee of an irrevocable trust has a duty to inform and account to a qualified beneficiary pursuant to Fla. Stat. 736.0813.  However, what happens where a qualified beneficiary has never received an accounting and then seeks redress in Court for the actions of a trustee years later?

The Third District Court of Appeal recently considered such a matter in Taplin v. Taplin, 88 So. 2d 344 (Fla. 3d DCA 2012).    In Taplin, the trial court dismissed a second amended complaint with prejudice filed by a qualified beneficiary against the Co-Trustees of a trust.  The complaint had sought an accounting, breach of trust removal of trustees and surcharge.  The dismissal was based upon failure to object within the six-month limitation period provided by Florida law (at that time Florida Statute 737.307, which has since been replaced by 736.108) or the four-year statute of limitations for an intentional tort under Fla. Stat. 95.11(3)(o).  In other words, the trial court found that the second amended complaint was time-barred.

The appellate court reversed the dismissal, holding that the limitation period was only applicable in instances where accountings “fully disclosing the matter” were actually served upon the beneficiary.  In Taplin the appellate court determined that, as per reviewing the complaint in the light most favorable to the plaintiff, an accounting was never received by the plaintiff.  Citing a prior case, the court stated, “[i]t has long been recognized at common law that a statute of limitations is inapplicable to shield trustees from their responsibilities to their beneficiaries.   The Plaintiff in Taplin was twelve years old when the trust at issue was established which could raise additional questions regarding proper service of an accounting in an accounting, although that issue was not addressed in the opinion.

If you are a trust beneficiary and have not been getting proper accountings mandated by Florida Law, call the probate attorneys at Adrian Philip Thomas, PA for a free consultation regarding your rights and potential remedies.       

There are many times when trustees, beneficiaries, or others with an interest in the trust’s assets will challenge the terms of a trust, the actions of a trustee, or the validity of the entire trust instrument itself and lawsuits will be filed. Florida Trust Litigation situations can include:

Trust Contests – Sometimes beneficiaries and/or people excluded from a trust will file a law suit challenging the legal validity of a Trust. They may do so in any number of ways, such as asserting mistake in execution, undue influence or lack of capacity.  The causes of action for a trust dispute or trust contest are substantially similar to those for a will contest.

Trust Construction – There are occasions when a Trust contains language that is confusing or even contradictory.  Mistakes can be made, or ambiguities can arise, when Trusts are prepared. Afterwards, a lawsuit may be needed in order for a judge to rule on whether or not Florida laws will allow the Trust to be revised or reformed, even after the Settlor’s death.

Challenges to the Trustee – Many lawsuits dealing with Trusts in Florida courtrooms are focused upon the actions of the Trustee in implementing the language of the trust documents, and not challenging the content of the Trust itself. These challenges to the actions (or inactions) of the Trustee can include breach of fiduciary duty, removal of fiduciary, surcharge action or accounting.

How do I stay out of Court?  Under Florida’s Trust Code, which became effective in July 2007, there are now several options for trust beneficiaries or interested persons who are seeking justice in connection with a Florida Trust other than seeking to have a trust declared invalid, in whole or in part.  The Code provides for Nonjudicial settlement agreements, Trust Modification and/or Termination, and Trust Reformation.

If you have a Florida Trust Litigation question, call the attorneys at Adrian Philip Thomas, P.A. for a free consultation.

IMPOSING PERSONAL LIABILITY ON A TRUSTEE FOR BREACH OF FIDUCIARY DUTY WITH A SURCHARGE ACTION

“We count on the space of trust that confidentiality provides.  When someone breaches that trust, we are all worse off for it.”  Hillary Clinton

When a trustee is appointed, the trust instrument and Florida Statutes direct and authorize the trustee to perform their fiduciary duties as trustee. Florida Statute 736.0401 and 736.0402.  What can be done if the trustee or successor trustee breaches their fiduciary duties as trustee?  The elements of a cause of action against the trustee for breach of fiduciary duty are: 1) the existence of a duty; 2) breach of that duty; and 3) damages flowing from the breach of that duty.  Crusselle v. Mong, 59 So.3d 1178 (Fla. 5^th DCA 2011).

Florida Statute 736.1002 lists damages for breach of trust for which a trustee may be liable.  If there is an absence of breach of trust, then the trustee is not liable to a beneficiary for a loss or depreciation in the value of the trust property, or for not having made a profit.  Florida Statute 736.1003.  The language of the trust document should be reviewed by competent counsel to determine if and when the trustee has breached their fiduciary duty as trustee.

Florida Statute 736.1001 lists remedies for breach of trust,  but if it is believed that the trustee has breached their fiduciary duty as trustee, a surcharge action may be filed against the trustee seeking to impose personal liability on a fiduciary for breach of trust through either intentional or negligent conduct.  Black’s Law Dictionary 1441 (6^th Ed. 1990); Harding v. Rosoff, 951 So.2d 912 (Fla. 4^th DCA 2007).  A “surcharge” is defined as a charge against a fiduciary to compensate a beneficiary for the breach of fiduciary duty.  Id.  Surcharge is also defined as the amount that a court may charge a fiduciary that has breached their fiduciary duty.  Merkle v. Guardianship of Jacoby, 862 So.2d 906 (Fla. 2^nd DCA 2003).

A surcharge action may be warranted if the trustee or successor trustee breached their fiduciary duty to administer the trust, and/or breached their duty of loyalty, impartiality, prudent administration, and control and protection of the trust property.  Florida Statutes 736.0801, 736.0802, 736.0803, 736.0804, 736.0809.

If the trustee or successor trustee wrongfully invaded the principal of the trust for their own person benefit, this creates a conflict of interest between the trust’s beneficiaries and the trustee’s fiduciary duty, and a beneficiary of the trust can retain competent counsel to render the transaction voidable and institute a surcharge action against the trustee.  Florida Statute 736.0802(2); Brigham v. Brigham, 11 So.3d 374 (Fla. 3^rd DCA 2009); J.P. Morgan Trust Company, N.A. v. Siegel, 965 So.2d 1193 (Fla. 4^th DCA 2007); Keye v. Gautier, 684 So.2d 210 (Fla. 3^rd DCA 1996).

The trustee or successor trustee is a fiduciary and has a duty to refrain from self-dealing, the duty of loyalty, and the overall duty to not take unfair advantage, and must act in the best interest of the trust’s beneficiaries.  Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. 3^rd DCA 1994).  A trustee has the duty to administer a trust diligently for the benefit of the beneficiaries of the trust.  Friedman v. Friedman, 11 So.3d 374 (Fla. 3^rd DCA 2009); Brigham v. Brigham, 11 So.3d 374 (Fla. 3^rd DCA 2009).  The trustee should not use trust funds for his own benefit and, as a result of this action, placing these funds unnecessarily at risk.  Keye v. Gautier, 684 So.2d 210 (Fla. 3^rd DCA 1996); Crawford v. Crawford, 129 Fla. 746, 176 So. 838 (Fla. 1937); Jungbluth v. American Bank & Trust Co, 101 Fla. 289, 134 So. 618 (Fla. 1931); Bailey v. Leatherman, 615 So.2d 810 (Fla. 3^rd DCA 1993); Barnhart v. Hovde, 490 So.2d 1271 (Fla. 5^th DCA), review denied 510 So.2d 543 (Fla. 1986); Centrust Savings Bank v. Barnett Banks Trust Co., 483 So.2d 867 (Fla. 5^th DCA 1986); Shriner v. Dyer, 462 So.2d 1122 (Fla. 4^th DCA 1984).

In the event you believe a trustee or successor trustee has breached their fiduciary duty which resulted in damages flowing from the breach of fiduciary duty, it is imperative that you contact competent counsel to review the trust document and any amendments to the trust document, and to seek the appropriate relief, including but not limited to filing a surcharge action against the trustee to impose personal liability upon the trustee, to compensate the beneficiaries for the breach of fiduciary duty, and to ensure that the trust assets are preserved and properly maintained.

Florida trust disputes can take many forms.  Below are some examples of causes of action that fall under the broader category “Fl Trust Dispute:”

• Accounting – if a beneficiary has received inadequate or insufficient information from a trustee, the beneficiary may need to formally demand an accounting to compel compliance.
• Removal – if a trustee has acted inappropriately and needs to be removed from the position of trustee, a beneficiary may seek to have the court remove the trustee.
• Breach of Fiduciary Duty – if a trustee has engaged in conduct that violates his duties to the beneficiaries, a beneficiary may sue the trustee for breach, which is a cause of action for money damages.
• Trust Modification – if a beneficiary believes there is a mistake in the trust or that the person who made the trust did not adequately anticipate the beneficiary’s current needs, he may seek assistance – either through the courts or outside of the courts – in changing the terms and provisions of the trust.
• Trust Termination – if the beneficiaries of a trust believe that the trust’s primary purposes has been fulfilled (e.g. to educate a certain class of beneficiaries), they may seek to have the trust terminated and the balance of the trust funds distributed to the beneficiaries.
• Undue Influence/Lack of Capacity – like a Will Contest, if an interested person believes that a trust document was created as the result of undue influence or lack of capacity, he may bring a cause of action challenging the validity of the trust document or parts of the trust document.

If you need to speak with a FL Trust Dispute Lawyer, please call the Law Offices of Adrian Philip Thomas, P.A. toll free at (800) 249-8125 for a free consultation.

WHAT IS A CONSTRUCTIVE TRUST?

             A Constructive Trust is an equitable remedy and is created when a court, through application of a legal fiction, deems property formerly held by one who wrongfully obtained the property, to be held in Trust for the one who the property justly belongs to be the beneficiary of the Trust.  Unlike other Trusts, a Constructive Trust is not predicated upon the party’s intent.  It is an equitable remedy and a tool used by courts to prevent someone from being unjustly enriched at the expense of an innocent victim.

            American Jurisprudence follows two distinct paths of reasoning with regards to the creation of a Constructive Trust.  One school of thought holds that a Constructive Trust arises when a transaction procured by fraud requires a court to impose a remedy of a Constructive Trust.  Another school of thought (and the one followed by Florida courts) holds that a Constructive Trust is not a Trust at all,  but is merely a remedy imposed by a court when asked to do so by a beneficiary who has been victimized by some inequitable and unjust conduct.  This is the minority view in the United States and is still followed by Florida courts.

            The Second District Court of Appeals recently reaffirmed this minority view of the law when it dealt with the allegations in a complaint that attempted to set forth a cause of action for a Constructive Trust.  In Swope v. Harmon (Fla.2^nd DCA 2D11-3228, March 28, 2002) 37 Fla.L.Weekly D725, the court faced an appeal by Plaintiff after the trial court had dismissed the complaint finding that the plaintiff failed to allege sufficient facts to satisfy all the requirements for imposition of a Constructive Trust.  The Second District Court of Appeal affirmed the result but for different reasons then those stated by the trial court.  According to the Second District Court of Appeals, “A Constructive Trust is not a traditional cause of action; it is more accurately defined as an equitable remedy.”  The Court also stated that “because a Constructive Trust is a remedy, it must be imposed based upon an established cause of action.”

            Probate litigators who frequently face situations where an innocent party has been victimized by a wrongdoer, (and the wrongdoer has possession of property that does not rightfully belong to them through using undue influence, fraud, duress or coercion of another by changing a Will or Trust or some other unscrupulous conduct,) are equipped with the extraordinary remedy of Constructive Trust.  This equitable remedy can be critical in achieving justice for victims of undue influence and other tortious conduct in connection with the interference with the family’s inheritance and expectancy.

BREACH OF TRUSTEE’S OR SUCCESSOR TRUSTEE’S FIDUCIARY DUTY

“The prudent heir takes careful inventory of his legacies and gives a faithful accounting to those whom he owes an obligation of trust.”  John F. Kennedy

When a Revocable Trust is executed, the Trustee is usually the person who executed the trust.  The settlor of the trust could also appoint another person or financial institution as the Trustee of his or her revocable trust.   When the Trustee dies or is no longer able to serve, a successor trustee is named in the trust instrument, which directs and authorizes the successor trustee to perform their fiduciary duties as successor trustee. Florida Statute 736.0401 and 736.0402.  What happens if the trustee or the successor trustee does not perform their fiduciary duties as trustee?  The beneficiaries and residual beneficiaries of the trust should take careful inventory of their legacy.  They are entitled to a yearly trust accounting from the trustee or successor trustee pursuant to Florida Statute 736.08135 and 736.0810.  In the event the beneficiaries of the trust request from the trustee or the successor trustee an annual accounting, and fail to receive one, the trustee is in violation of their fiduciary duty as trustee pursuant to Florida Statute 736.08135.

The language of the trust document should be reviewed by competent counsel to determine if and when the trustee or successor trustee may invade the principal of the trust.    The polestar of trust or will interpretation is the settlor’s intent.  Bryan v. Dethlefs, 959 So.2d 314 (Fla. 3^rd DCA 2007); Arellano v. Bisson, 847 So.2d 998 (Fla. 3^rd DCA 2003); Phillips v. Estate of Holzmann, 740 So.2d 1(Fla. 3^rd DCA 1998).  The intent of the settlor is ascertained from the four corners of the document through consideration of all the provisions taken together, rather than from detached portions or any particular form of words.  Bryan v. Dethlefs, 959 So.2d 314 (Fla. 3^rd DCA 2007); Arellano v. Bisson, 847 So.2d 998 (Fla. 3^rd DCA 2003); Phillips v. Estate of Holzmann, 740 So.2d 1(Fla. 3^rd DCA 1998).

If the trustee or successor trustee inappropriately invades the principal of the trust in direct violation of the terms of the trust, the trustee or successor trustee has violated specific terms of the trust by misappropriating a portion or the entire principal of the trust.  Therefore, the trustee or successor trustee have breached their fiduciary duty to administer the trust, as well as breached their duty of loyalty, impartiality, prudent administration, and control and protection of the trust property.  Florida Statutes 736.0801, 736.0802, 736.0803, 736.0804, 736.0809.

If the trustee or successor trustee wrongfully invaded the principal of the trust for their own person benefit, this creates a conflict of interest between the trust’s beneficiaries and the trustee’s fiduciary duty, and a beneficiary of the trust can retain competent counsel to render the transaction voidable.  Florida Statute 736.0802(2); Brigham v. Brigham, 11 So.3d 374 (Fla. 3^rd DCA 2009); J.P. Morgan Trust Company, N.A. v. Siegel, 965 So.2d 1193 (Fla. 4^th DCA 2007); Keye v. Gautier, 684 So.2d 210 (Fla. 3^rd DCA 1996).  A trustee or successor trustee is a fiduciary and owes to the beneficiaries the duty to refrain from self-dealing, the duty of loyalty, and the overall duty to not take unfair advantage, and must act in the best interest of the trust’s beneficiaries.  Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. 3^rd DCA 1994).  A trustee has the duty to administer a trust diligently for the benefit of the beneficiaries of the trust.  Friedman v. Friedman, 11 So.3d 374 (Fla. 3^rd DCA 2009); Brigham v. Brigham, 11 So.3d 374 (Fla. 3^rd DCA 2009).

Also, Public Policy of Florida, as articulated in numerous court decisions, frowns upon a trustee using trust funds for his own benefit and, as a result of this action, placing these funds unnecessarily at risk.  Keye v. Gautier, 684 So.2d 210 (Fla. 3^rd DCA 1996); Crawford v. Crawford, 129 Fla. 746, 176 So. 838 (Fla. 1937); Jungbluth v. American Bank & Trust Co, 101 Fla. 289, 134 So. 618 (Fla. 1931); Bailey v. Leatherman, 615 So.2d 810 (Fla. 3^rd DCA 1993); Barnhart v. Hovde, 490 So.2d 1271 (Fla. 5^th DCA), review denied 510 So.2d 543 (Fla. 1986); Centrust Savings Bank v. Barnett Banks Trust Co., 483 So.2d 867 (Fla. 5^th DCA 1986); Shriner v. Dyer, 462 So.2d 1122 (Fla. 4^th DCA 1984).

In Barnhart v. Hovde, 490 So.2d 1271 (Fla. 5^th DCA), review denied 510 So.2d 543 (Fla. 1986), Hovde was named trustee for the beneficiaries, who were her stepchildren.  Hovde sold a trust asset (an apartment complex) without obtaining a court order to do so in violation of Fla. Stat. 737.403(2).   Hovde had conflicting interests with the beneficiaries of the trust, and the sale of asset resulted in benefit to the trustee and a detriment to the beneficiaries.  Id.  The Trustee had interests which definitely conflicted with those of the other beneficiaries, which resulted in a benefit to the trustee and a detriment to the other beneficiaries, and the Court found that Hovde violated the terms of the trust and applicable state statutes.  Id.

In the event you believe a trustee or successor trust has breached their fiduciary duty which resulted in a benefit to the trustee and a detriment to the beneficiaries of the trust, it is imperative that you contact competent counsel to review the trust document and any amendments to the trust document, and to seek the appropriate relief in order to ensure that the trust assets are not unnecessarily at risk which could be a detriment to the beneficiaries of the trust.

Florida law allows for a trustee in Florida to be removed for certain reasons.  The grounds to remove a trustee in Florida include:

(a) The trustee has committed a serious breach of trust;

(b) The lack of cooperation among cotrustees substantially impairs the administration of the trust;

(c) Due to the unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or

(d) There has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.

A trustee has the duty to administer the trust diligently for the benefit of the beneficiaries. A trustee must deal impartially with the trust beneficiaries, i.e., treat them even-handedly and act in the interest of the trust as a whole. Further, the law requires a trustee to seek approval from a court for the exercise of a trust power when it conflicts with the trustee’s individual interest.

REMEDIES FOR BREACH OF TRUST

A trustee of a trust has several duties and obligations to the beneficiaries in administering a trust, including but not limited to: administering the trust in good faith, in accordance with its terms and purposes (Fla.Stat. §736.0801); a duty of loyalty and to administer the trust solely in the interests of the beneficiaries (Fla.Stat. §736.0802); the trustee shall act impartially in administering the trust property giving due regard to the respective interests of multiple beneficiaries (Fla. Stat. §736.0803); in administering a trust, the trustee shall only incur expenses that are reasonable in relation to the trust property, the purposes of the trust and the skills of the trustee (Fla. Stat. §736.0805); a trustee shall keep clear, distinct, and accurate records of the administration of the trust (Fla. Stat. §736.0810); a trustee shall keep the qualified beneficiaries of the trust reasonably informed of the trust and its administration (Fla. Stat. §736.0813). A violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust. In the event a breach of trust occurs, or may occur, the court has several actions it may take to remedy a breach of trust.

Florida Statute §736.1001(2), “Remedies for breach of trust,” provides a non-exclusive list of those actions the Court may take to remedy a breach of trust. The Court may:

a) Compel the trustee to perform the trustee’s duties;

b) Enjoin the trustee from committing a breach of trust;

c) Compel the trustee to redress a breach of trust by paying money or restoring property or by other means;

d) Order a trustee to account;

e) Appoint a special fiduciary to take possession of the trust property and administer the trust;

f) Suspend the trustee;

g) Remove the trustee as provided in s. 736.0706;

h) Reduce or deny compensation to the trustee;

i) Void an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed of an recover the property or its proceeds; or

j) Order any other appropriate relief.

            In addition to the above list of actions a court may use to remedy a breach of trust, it may also find that a trustee who commits a breach of trust is liable for the greater of the amount required to restore the value of trust property and trust distributions to what they would have been if the breach had not occurred including lost income, capital gain, or appreciation that would have resulted from proper administration; or the profit the trustee made by reason of the breach. (Fla. Stat. §736.1002).

            If you as a beneficiary of a trust have been damaged by a breaching trustee, do not despair as there are several remedies at the court’s disposal. The Court has full discretion when fashioning the appropriate relief based upon the unique facts of your case and the specific damages you have incurred. An experienced trust litigation attorney can present your facts and the necessary evidence the Court will require to determine what specific relief is most appropriate to remedy the specific breaches committed by your trustee.

Florida Trust Decanting:  Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940) and Florida Statute §736.04117

“Decanting” is the legal term used to describe the distribution of trust property from one trust to another trust pursuant to the trustee’s discretionary authority to make distributions to or for the benefit of one or more beneficiaries.  Common law provides authority for trust decanting, but several states – including Florida – have codified the common law.  Florida Statute §736.04117 became effective on July 1, 2007.

Under common law, a trustee with absolute power to invade principal is the equivalent of a donee of a special power of appointment.  Restatement (Second) of Prop.: Donative Transfers §11.1  Absent a contrary provision in the governing document, a donee of a power of appointment may exercise such power in a manner which is less extensive than authorized by the instrument creating the power.  Thus, “the rationale underlying decanting is that if a trustee has the discretionary power to distribute property to or for the benefit of one or more current beneficiaries, then the trustee, in effect, has a special power of appointment that should enable the trustee to distribute the property to a second trust for the benefit of such beneficiaries.”  William R. Culp, Jr. & Briani Bennett Mellen, Trust Decanting: An Overview and Introduction to Creative Planning Opportunities, Real Property, Trust and Estate Law Journal, Spring 2010, p. 3. The theory is that if there is authority to distribute outright, then there is authority to distribute in further trust. Alan Halperin and Michelle R. Wandler, Decanting Discretionary Trusts:  State Law and Tax Considerations, 29 Tax Management Estates, Gifts & Trusts Journal, 219, 221 (2004).

In 1940, the Supreme Court of Florida considered whether a trustee, who was specifically authorized by the trust document to appoint the trust property among beneficiaries in whatever proportions he desired in his sole discretion, could create a second trust for the benefit of the beneficiaries funded with property distributed from the first trust.  Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940).  In Phipps, the settlor, Margarita Phipps, created a trusts for the benefit of her four children.  She named Palm Beach Trust Company and her husband as co-trustees.  Her husband was given a personal power of appointment, exercisable during life by written instrument delivered to the corporate trustee or at death in his Last Will & Testament, in favor of the four children and/or their descendants in whatever proportions as he shall determine.  In compliance with the express terms of the trust, Mr. Phipps provided written directions to the corporate trustee to create a second trust for the descendants.  The corporate trustee, in an abundance of caution, brought a suit in equity praying for construction of the original trust. 

The Phipps court held that the creation of the second trust was permissible because the trustee had both a lifetime and a specific testamentary power to direct distributions to trust beneficiaries.  Ergo, the trustee’s power was a power of appointment instead of a discretionary power to distribute trust property.  The Phipps holding does not provide authority for the position that a trustee with a purely discretionary power held in a fiduciary capacity can transfer assets to a new trust.  Florida Statute §736.04117 codifies the principal holding in Phipps. 12 Fla.Prac., Estate Planning §6:41 (2010-2011 ed.).  In summary, the statute provides that a trustee who has absolute power under the terms of the trust to invade principal may make distributions to a second trust if those beneficiaries include only those beneficiaries of the first trust without reducing any fixed income interest.  The exercise of the decanting power is to be done by an instrument in writing, signed and acknowledged by the trustee and filed with the records of the first trust.  Additionally, the trustee shall notify all qualified beneficiaries of the first trust, in writing, at least 60 days prior to the effective date of the trustee’s exercise of the power to invade the principal and must set forth the manner in which the trustee is planning to exercise the power.  The trustee’s notice under this section shall not limit the right of any beneficiary to object to the exercise of the trustee’s power to invade the principal.  Fla.Stat. §736.04117.

Procedurally, the documents employed for a trust decanting should be similar to those used with respect to a resolution to distribute property.  A written document providing the terms of the trustee’s discretionary exercise of the power to decant should set forth the terms of the exercise of the power to appoint trust property further in trust.  It should set forth background information or recitals identifying (1) the current trustees of the original trust and the trustees that are exercising the decanting power (2) when the original trust was formed and by whom (3) the relevant terms of the original trust (4) the trustee’s authority for the decanting, whether pursuant to statute or the trust instrument, and (5) the appointee trust that will receive trust property from the original trust.  The decanting document should also include trustee resolutions designating and appointing assets of the original trust to the appointee trust and directing the appointed assets be held in accordance with the appointee trust.  William R. Culp, Jr. & Briani Bennett Mellen, Trust Decanting: An Overview and Introduction to Creative Planning Opportunities, Real Property, Trust and Estate Law Journal, Spring 2010, p. 43.