Know the Risks When Becoming or Choosing a Trustee

A calculator, pen, and financial statement.

Serving as trustee of a trust is a big responsibility. Often we don’t think much about what it truly means to be a fiduciary for someone else. We simply nominate our children, sister, brother, family friend, etc. After all, we are helping out family and friends.

Being a trustee seems pretty simple, make some distributions, keep a record of what comes out of the trust account, send some statements….easy. WARNING, what may seem simple or easy, often isn’t.

After all, how simple can it be if there are dozens of Florida Statutes covering the topic? The Florida Trust Code, Title XLII (Estates and Trusts), Chapter 736, in particular Part VII, Office of Trustee, and Part VIII, Duties and Powers of Trustee are particularly important for those that accept the responsibilities and duties of a Trustee.

We have written elsewhere (and will continue to write) on the various duties of trustees. (See HERE.)

This article is not meant to scare anyone about trusts or trustees. Rather, we are merely reminding you that the role of trustee is more of a job than a hobby. Like any job, you are responsible for your actions.

It is best to be informed before you choose a trustee or accept a trusteeship and to know what your risks and liabilities are in advance (or to know what the risks and liabilities are for those you choose to serve as fiduciaries in your estate planning documents). That way, you can be prepared and have the knowledge you need to help out those you are intending to benefit without worry, stress and anxiety.

What To Do If You Are Considering Accepting The Role Of Trustee or Selecting a Family Member to Serve as Yours:

  • Read and become aware of a trustee’s duties and powers. (§736.0801-736.08163, Fla. Stat. or Click HERE)
  • Some of the main duties:
    •  Duty to administer trust- in good faith, in accordance to the terms and purposes and in the interests of the beneficiaries.
    •  Duty of loyalty- between trustee and beneficiaries.
    •  Record-keeping and identification of trust property- keep clear, distinct, and accurate records of the administration of the trust. Trustees must keep all trust property separate from the trustee’s own property.
    •   Duty to inform and account- keep the qualified beneficiaries of the trust reasonably informed of the trust and its administration.
      •  Upon request provide a qualified beneficiary with a complete copy of the trust instrument.
      • A trustee of an irrevocable trust shall provide a trust accounting, from the date of the last accounting or form the date on which the trustee became accountable to each qualified beneficiary at least annually and on the termination of the trust or with the change of the trustee.
  • Know what a fiduciary is- According to Black Law’s Dictionary, a fiduciary is (1) a person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence, and candor. (2) One who must exercise a high standard of care in managing another’s money or property.
  • Keep in mind these Words of Warning: “If you do not give accountings and you are a trustee, you are personally guaranteeing the trusts’ assets and performance.” (This includes taxes, investments, etc.)
  • PROVIDE TRUST ACCOUNTINGS and be sure to include on each accounting the following NOTICE:

NOTICE:

An action for breach of trust based on matters disclosed in a trust accounting or other written report of the trustee may be subject to a 6-month statute of limitations from the receipt of the trust accounting or other written report. If you have questions, please consult your attorney.

***This statement limits the trustee’s personal liability! Don’t be on the hook for years or even decades.

If you are selecting fiduciaries to serve in your own estate plan, carefully consider selecting a corporate/professional fiduciary with the experience, systems and financial wherewithal to handle these risks and responsibilities for your family. Or, if you are currently serving as trustee, you may consider appointing a corporate/professional fiduciary to serve with you or instead of you. Not sure if your trust document permits this? Get in touch with us for a document review.

Woodward v. Woodward (Fla. 4th DCA, May 4, 2016)

To illustrate the importance of Trust Accounting lets briefly look at this recent Florida case.

In 1972 a Grandmother established a trust for her Grandchildren. She named her son as the trustee. In 1996, a beneficiary of the trust filed a complaint against the Trustee for breach of fiduciary duty alleging that the trustee failed to make an accounting since the trust’s inception, improperly mortgaged real property in the trust, and improperly used trust funds to pay for educational expenses.

The Beneficiary also sought the removal of the Trustee. The court ended up dismissing the Beneficiary’s complaint for a few reasons. But, while the case was still pending, the Trustee transferred the assets from the original trust into to two separate trusts, thus terminating the original trust. The Beneficiary was not a beneficiary of the new trusts.

Much later, in October of 2011, the Trustee issued an accounting for the original trust that showed a starting value in January 2002 of $944,038.89 and a closing value in May 2002 of $0. The footnote that accompanied the accounting stated that the Trustee exercised his right of withdrawal and withdrew all assets, transferring them into the new trusts.

Accompanying the October, 2011 accountings was a limitations notice stating that an action for breach of trust based on the matters disclosed in the accountings may be barred unless the action was commenced within six (6) months of receipt of the accounting. (See above in red.)

In April 2012, the same Beneficiary filed a new suit against the Trustee for breach of fiduciary duty for transferring all of the assets out of the original trust. The Trustee objected to the new suit because, among other things, he alleged the beneficiary was aware of the transfer to the new trusts no later than January 2003. Thus, alleged the Trustee, the normal 4-year statute of limitations barred the claim.

The court ruled that the Trustee was unable to show that the beneficiary was in fact aware of the termination in 2003, despite some documentation suggesting otherwise. The court held that the 4-year statute of limitations cannot begin until the Beneficiary becomes aware of the problem; therefore the statute never ran.

The court did confirm that the special 6-month statute of limitations would be applicable, beginning in October, 2011, because of the limitations notice properly included with the trust accounting issued at that time. However, the Beneficiary got the claim in just under the 6-month wire, in April, 2012. So, back to the trial court to hear the Beneficiary’s claim based on a Trustee’s action more than 13 years earlier. Ouch.

(Want to read the case yourself?: Click HERE)

What To Take Away From This Case:

  • A special 6-month statute of limitations is available to cut off trustee liability, if, and only if, trust accountings are provided, and those accountings include the special “limitations notice” shown above.
  • Without a trust accounting, there is a 4-year statute of limitations on actions against a trustee, but, and this is a big “but,” as the Woodward case shows, the 4-year statute never begins if a beneficiary can convincingly claim he or she was unaware of the problem.
    • Can a trustee who has not issued accountings ever truly find any comfort in the 4-year statute of limitations under these conditions?
    • The very first argument the unhappy beneficiary should be expected to make is “I was unaware that you [invested so foolishly, purchased that property, took that tax position, distributed that to my sister, etc…].”

If you are concerned about how your choice of trustee or personal representative might impact your estate plan, or if you are a Trustee or Beneficiary concerned about whether trustee duties and responsibilities are being met, please reach out to us at Oakstone Law PL. We will be happy to discuss your concerns.

Click here to get in touch.


About Oakstone Law PL

Over two decades of managing estate and trust related problems and opportunities for clients has taught us a lot. We’ve worked with assorted billionaires and millionaires, including Forbes 400 members, pro football team owners, professional athletes, and C-level executives of public companies. Along the way, we’ve learned a thing or two about how effective planning works, and where things can break down.

But we’ve also learned that for you, it’s not just about us being expert technicians. We’ve listened and learned about the hassles that drive clients and their families crazy – and how to avoid them. Are you familiar with or tired of things like surprise invoices, confusing or vague pricing, unreturned phone calls and emails? Unfortunately, these are all too common in the professional services world.

But you won’t experience those with us. At Oakstone Law, we recognize that you’re not just looking for expertise, you’re looking for professionals who care about you and your family. And we’re focused on delivering the highest quality service to you and your family.

Our mission:

Delivering peace of mind with the highest quality, most enjoyable service our clients, their families and their advisors have ever experienced.

Client Payment Page
Need to pay a bill? Now it’s faster and easier to pay a bill. It’s secure safe and easy

Oakstone Law
1415 Panther Lane, Suite 439
Naples, Florida 34109
Tel: 239.206.3454