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. Read the rest of this entry

2008 Legislative Action Affecting Trusts and Estates

It was a busy summer in Tallahassee for our legislature. Below are summaries of some of the House and Senate Bills that were signed into law by Governor Crist affecting probate practitioners and litigators:

Fla.Stat. §736.0703 (2008 Fla.Laws 76).

The amendment to the Florida Trust Code, by virtue of a Council substitute for House Bill 435, became effective July 1, 2008, and clarifies the liability of a trustee who is required under the terms of the trust to follow the directions of another trustee. Specifically, the law now provides that “if the terms of a trust instrument provide for the appointment of more than one trustee but confer upon one or more of the trustees, to the exclusion of the others, the power to direct or prevent specified actions of the trustees, the excluded trustees shall act in accordance with the exercise of the power.” The amendment insulates the excluded trustee from liability, both individually and as a fiduciary, for complying with the exercise of the power by the empowered trustee, except in cases of willful misconduct on the part of the directed trustee of which the excluded trustee has actual knowledge. This insulation from liability remains regardless of what information might be available to the trustees. In fact, the excluded trustees are relieved of any obligation to review, inquire, investigate, or make recommendations or evaluations with respect to the exercise of the power. Further, the trustee or trustees having the power to direct or prevent actions of the trustees shall be liable to the beneficiaries with respect to the exercise of the power as if the excluded trustees were not in office and shall have the exclusive obligation to account to and to defend any action brought by the beneficiaries with respect to the exercise of the power.

Fla.Stat. §736.0802 and Payment of Trustees’ Attorneys Fees

This has been a hot topic in the probate bar for years and will likely continue to be an issue in light of the legislation enacted this summer. After the amendment to section 0802 of the Florida Trust Code, payment of costs or attorney’s fees incurred in any trust proceeding from the assets of the trust may be made by the trustee without the approval of any person and without court authorization, unless the court orders otherwise. If a claim or defense based upon breach of trust is made against a trustee in a proceeding, a party must obtain a court order to prohibit the trustee from paying costs or attorney’s fees from trust assets. To obtain an order prohibiting payment of costs or attorney’s fees from trust assets, a party must make a reasonable showing by evidence in the record or by proffering evidence that provides a reasonable basis for a court to conclude that there has been a breach of trust. The trustee may proffer evidence to rebut the evidence submitted by a party. The court in its discretion may defer ruling on the motion, pending discovery to be taken by the parties. If the court finds that there is a reasonable basis to conclude that there has been a breach of trust, unless the court finds good cause, the court shall enter an order prohibiting the payment of further attorney’s fees and costs from the assets of the trust and shall order attorney’s fees or costs previously paid from assets of the trust to be refunded.

This amendment also added a new notice requirement on trustees who wish to charge attorney’s fees from trust assets. With the amendment, the Trust Code now requires that if a claim or defense based upon a breach of trust is made against a trustee in a proceeding, the trustee shall provide written notice to each qualified beneficiary of the trust whose share of the trust may be affected by the payment of attorney’s fees and costs of the intention to pay costs or attorney’s fees incurred in the proceeding from the trust prior to making payment. The written notice shall inform each qualified beneficiary of the trust of the right to apply to the court for an order prohibiting the trustee from paying attorney’s fees or costs (discussed above) from trust assets.

Fla.Stat. §736.1008

This amendment to the Florida Trust Code creates limitations periods for actions against a trustee for breach of trust. Depending on the conduct of the trustee and the knowledge of the beneficiary, the limitations periods range from 10 to 40 years after the trust ends:

The ten and twenty year limitations apply to any action by a beneficiary where the beneficiary had actual knowledge of the existence of the trust and the beneficiary’s status as a beneficiary throughout the 10 or 20 year period.

The forty years limitation applies when a beneficiary shows by clear and convincing evidence that a trustee actively concealed facts supporting a cause of action.