If a person is serving as a trustee of a discretionary trust (trustee has the right and authority to distribute income and principal) then he has complete authority over trust distributions and according to the trust document answers to no one.  However, what if the trustee of the trust exercises his  authority to distribute the entire trust corpus to the current beneficiary or worse distribute all of the trust assets to himself?  Can this be stopped and can the trustee really clean out all of the cash. If the trustee takes this action, there arises a question as to what the trustee’s fiduciary duty is to the other beneficiaries of the trust.  The case of  Mesler v. Holly, 318 So. 2d 330 (Fla. 2d DCA 1975) provides, “even unlimited power of invasion is subject to implied limitations to protect remaindermen.” (more…)

Desperate Times Call for Desperate Measures

“O mischief, thou art swift to enter in the thoughts of desperate men!”~William Shakespeare

During the recent economic crisis, our office has seen an increase in trust litigation matters involving trustees failing to fulfill their fiduciary obligations by participating in self-dealing, receiving unreasonable compensation and trustee fees and taking personal loans against the Trust expecting to pay it back before any of the beneficiaries become aware. These cases generally do not involve strangers or neutral, independent, or professional trustees breaching their duties to the Trusts, but quite often involve siblings breaching their duties to siblings, step-parents failing their step-children, long-time family attorneys or friends stealing from their clients’ children. What is disturbing is these are the same people we tend to trust and have shown no signs of dishonesty or disloyalty in the past. One can debate the reasons behind this sudden increase in fiduciary litigation, but one thing is certain, now more than ever it is important that a beneficiary of a trust ensure that their interests are protected and that the trustee responsible for preserving the Trust’s assets is not asleep behind the wheel, or worse, treating the Trust assets as if they were their own personal assets. As so eloquently stated by Mr. Shakespeare,  even people we love and trust, named as trustees to take care of our inheritances, may be facing their own personal financial crisis, a level of desperation which can cause a once honest person to steal in order to survive.

The question is, how can you try to prevent such indiscretions and limit the amount of potential damages that occur when good trustees go bad? (more…)

“I’ve got the power!”

Does absolute discretion mean trustees can exercise their discretion absolutely?

The short answer is “no.”  

The longer answer requires the starting point to be – what does the trust say?  The settlor is the person who makes the trust and his or her intent is the polestar by which a trust should be interpreted and construed. 

So if the trust grants the trustee the absolute discretion to distribute money from the trust then isn’t the trust stating that the trustee can do no wrong when deciding what amount to distribute?  Well, not really.  A provision seemingly allowing the trustee to distribute whatever he or she wants to must be balanced with the rest of the document. In other words, a trustee cannot pluck a sentence or two out of a forty page document and rely upon it as his or her absolute authority to distribute all the trust money with impugnity, leaving the remaindermen beneficiaries holding the bag–in many cases an empty one.

The courts have balanced the trustee’s power or discretion to invade the trust principal with the trustee’s fiduciary obligation to the remaindermen beneficiaries. As stated by one court “even an unlimited power of invasion is subject to implied limitations to protect the remaindermen.” So while the trustee may be singing “I’ve got the power,” the second stanza sounds like “but not to the detriment of the final beneficiaries.”

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. (more…)

A LESSON IN TRUST…

We often come across cases in which a Will or a Trust leaves assets equally to all of the Decedent’s children. However, at the time of death, most of the Decedent’s assets are held in joint accounts with only one of the children named as a joint owner, thereby entitling only one child to the entire account as the remaining joint owner and avoiding the equal distribution that the parent planned through his or her Will and/or Trust.

Unfortunately, the account title tends to control, despite the understanding that the child receiving the account as joint owner had been placed on the account for convenience purposes only to help mom or dad pay bills, as needed; not to receive all of the assets upon their death. Parents believe their children would never cut out their siblings but this is sadly not always the case. (more…)

COMPENSATION OF TRUSTEES WHO ARE ALSO BENEFICIARIES

In a recent Florida Second DCA case, Burgess v. Prince, 25 So.3d 705 (Fla. 2^nd DCA 2010), the Court determined that a Trustee of a family trust, who was also a Trust beneficiary, was entitled to compensation for her management of Trust assets, despite the fact that the trust instrument provided that a beneficiary of the Trust could not receive compensation for serving as Trustee.  The trial court removed the Trustee and ordered that she may not be compensated for managing a business, which was a trust asset, and all compensation she received would be charged against her distributive share of the Trust.  See Id.  On appeal, the Appellate Court upheld the removal without discussion but reversed a part of the final judgment which ruled the Trustee could not be compensated for managing the business which was a trust asset.  Although the trust instrument provided that a Trustee who is also a beneficiary shall serve as Trustee without compensation, the Appellate Court found that the Trustee received compensation from the trust for operating the business, rather than as compensation as Trustee.  In ruling, the Appellate Court relied on language in the trust instrument which plainly stated that the Trustee can employee various individuals, including any Trustee, if such employment was deemed necessary or desirable and to be paid reasonable compensation for their services.  In addition, the trust instrument had language which allowed a Trustee to employee any beneficiary or individual fiduciary in any capacity. (more…)

Breathing Life Into An Otherwise Unenforceable Trust Instrument

The following is based on real events, only the names have been changed to protect the guilty. 

Jane Settlor created her revocable trust in 2005, naming herself as the initial trustee and sole income beneficiary during her lifetime, and upon her death, the remainder of the trust estate is to be divided amongst numerous individuals (some family, some not), charities and a charitable foundation that she created.  The drafting attorney, John Lawyer, is also the nominated successor trustee and the CEO of Mrs. Smith’s charitable foundation.

A couple years after executing her trust, Jane Settlor pulled out her estate planning documents to re-review her estate plan.  Upon reviewing her revocable trust, and to her surprise, she noticed that many of the residuary beneficiaries of her trust were people that she hardly knew at all, and should not have been included as beneficiaries of her trust.  Mrs. Settlor immediately began crossing out names and devises, and interlineated (in her own handwriting) new names and devises.  Next to each interlineated change, Mrs. Settlor handwrote her initials and the date.  She then made some handwritten notes on the front page of the trust instrument, which read as follows:  “Mr. Lawyer, I read my trust today, and I couldn’t believe what I saw.  There were people named who I hardly even know.  I was so sick at the time I signed the trust, that I didn’t even know what was being presented to me for my signature!!!”  (more…)

What’s a beneficiary to do?

Many people utilize revocable trusts in an effort to avoid probate.  Often, the primary asset of a revocable trust is real estate.  The person who signs the trust (Settlor) customarily chooses the individual(s) to serve as a successor trustee upon the Settlor’s death or incapacity.

Once the Settlor dies and a successor trustee accepts the position, a set of laws mandates the trustee’s conduct under Florida law.  These laws are found in Chapter 736 of the Florida Statutes, also known as the Florida Trust Code.  In particular, sections 736.0801 (duty to administer trust), 736.0802 (duty of loyalty) 736.0803 (impartiality), and 736.0804 (prudent administration) are triggered.  The Florida Trust Code was modified substantially in recent years and the current version took effect on July 1, 2007.     (more…)

Court of Appeals Expands Reach of Genova

There is growing concern over our legislature’s inability to make laws protecting the elderly and vulnerable against having their revocable trust funds taken from them during their lives. This is a topic I have previously discussed. (See blog dated September 25, 2008, Undue Influence and Trust Revocation.) The problems addressed in my earlier blog articles arise from the Florida Supreme Court’s opinion issued twenty-five years ago in Florida National Bank of Palm Beach County v. Genova, 460 So. 2d 895 (Fla. 1984). As is evident from the Fourth District Court of Appeals ruling this week in MacIntyre v. Wedell, (Fla. 4th DCA, 08-754), 34 Fla.L.Weekly D1011a (May 20, 2009), Genova is alive and will remain so unless and until our elected officials decide to change the law. (more…)

Court Refuses to Use Merger to Disinherit Former Spouse.What is the doctrine of merger?

The doctrine of merger is set forth in the Restatement of (Third) Trusts §69, which provides that if the legal title to the trust property and the entire beneficial interest become united in one person, the trust terminates. The comments to this section of the Restatement also states that if by inter vivos transfer, will, or operation of law the entire beneficial interest in trust property passes to the trustee, the trust terminates and the trustee holds the property free of trust.

Thus, if the sole beneficiary of a trust dies intestate and his interest passes to the trustee as his heir, merger occurs and the trust terminates. Similarly, if the trustee is also the life beneficiary of the trust, and if the sole remainder beneficiary, holding an indefeasibly vested remainder interest in the trust, assigns her interest to the trustee or dies and leaves her interest to the trustee, the trust terminates. (more…)