How to Protect Yourself as a Trustee

How to Protect Yourself as a Trustee

ShuffieldLowman attorney, Nicole Copsidas, also contributed to this post.

In the event that a problem develops in the trust administration of an irrevocable trust (a trust that cannot be amended by the person who created the trust), or if there is an ambiguity in the trust document itself, or there are allegations by the beneficiaries that the trustee is not serving the interest of the beneficiaries, the first safe harbor to consider  is a non-judicial settlement agreement.  This is an agreement that is signed by the trustee and the beneficiaries that have a present income or beneficial interest in the trust, and from the beneficiaries that get the rest of the trust (i.e. the “residual” or “remainder” beneficiaries) when the persons who have the present income or beneficial interest die (these persons are also called the “qualified beneficiaries” under the trust code). You may not use a non-judicial settlement agreement to produce a result not authorized by other provisions of Florida’s Trust Code, or that could not be properly approved by the court.  These types of agreements may cover:

  1. The interpretation or construction of the terms of the trust;
  2. The approval of a trustee’s report or accounting;
  3. The direction to a trustee to perform, or refrain from performing, a particular act; or
  4. The liability of a trustee for an action relating to the trust.

Another safe harbor is to obtain the consent and release from all of the qualified beneficiaries.  When obtaining a consent and release from the qualified beneficiaries, the trustee should give full disclosure of the relevant facts.  Alternatively, a trustee may ask the court to provide the trustee direction which is also called “declaratory relief” or “declaratory action”. Any interested person can invoke the court’s jurisdiction to obtain declaratory relief, and the proceeding can relate to construction, validity, administration, or distributions of trust.  A declaratory action can also be utilized to have the court review a trustee’s fees, review and settle interim trust accountings or final trust accountings, determine any right or duty of the trustee, seek instruction by the trustee, or determine any other matters involving trustees or beneficiaries.

            For instance, let’s say a family relative dies and leaves a trust for you and your siblings so you can pursue a “college or higher education degree” and the bank is the trustee. Let’s also assume that your child wants to go to a technical school to become a mechanic and wants the trust to pay for this education. The trustee may raise a concern that the technical school will not result in a “college degree” and therefore could file an action with the court to ask the court to interpret the trust or permit the trustee to use trust funds to pay for the technical training. The trustee alternatively could obtain the written consent of all of the trust’s qualified beneficiaries (assuming they are of age or have their parent’s consent) to use the trust funds to pay for the technical training.

Finally, a trustee who is considering exercising a discretionary power may seek judicial approval before acting if there is concern that a beneficiary may object. In such circumstances, the trustee should file a petition that describes the proposed exercise or non-exercise of the discretionary power and sets forth sufficient information to inform the qualified beneficiaries of the reasons for the proposal, the facts upon which the trustee relies, and explains how other beneficiaries will be affected. The burden is then on the objecting beneficiary to show why the proposed exercise or non-exercise of the power by the trustee is an abuse of the trustee’s discretion.

For example, if a trustee is allowed to distribute trust funds in any amount that the trustee deems just and proper for the benefit of three beneficiaries, and one beneficiary has a greater financial need because of a disability than the other two, the trustee before making the distribution can seek judicial approval to favor the beneficiary that has more financial needs over the other two beneficiaries. Otherwise, without court approval or consent of the beneficiary, the trustee could be exposed to allegations that the trustee inappropriately favored one beneficiary over another and otherwise that the trustee breached his or her duty of good faith.

The facts and circumstances governing trust administrations differ on a case-by-case basis.  ShuffieldLowman has an experienced team of trust attorneys that can guide trustees through the trust administration process to ensure they are complying with their mandatory fiduciary duties. Our attorneys can also assist trust beneficiaries with understanding their rights and recognizing breaches of fiduciary duty by a trustee who has veered off course.

Learn more about the duties of a trustee in our blog post: Understanding the Fiduciary Duties of a Trustee.

How to Protect Yourself as a Trustee

Financial exploitation: Florida law provides powerful help for seniors

We live in one of the most popular retirement states in our nation. The Baby Boomers have reached retirement age and the “great wealth transfer” has begun. According to a study from consulting firm Accenture, when this transfer is complete, some $30 trillion (yes, with a t) will be transferred from one generation to the next.[i]

With aging comes physical and mental impairment. According to the Alzheimer’s Association, there are approximately five million Americans who have some type of dementia.  A person with mild dementia may be impaired but not to the degree they would be considered legally incompetent.  We all know friends and family that, due to mild physical or mental infirmities, are susceptible to being taken advantage of financially, either through intentional acts of fraud by salespersons, a breach of trust (fiduciary duty) by caregivers or trustees, or acts of undue influence by neighbors, friends or even family members. Even if a senior is competent, they can still be susceptible to exploitation. Fortunately, they have the protection of Florida law.

Florida has enacted an Elder Exploitation statute.  Florida Statute section 415.1111 gives “vulnerable adults” a civil cause of action for damages, punitive damages and attorney fees and costs when they have been financially exploited. (There are also criminal penalties that the State can pursue, although these penalties will not be discussed here.) Under the law, a “vulnerable adult” is anyone older than 18 years who, due to mental, emotional or infirmities of aging, cannot provide for his or her own care or protection. “Exploitation” means a person of trust and confidence who knowingly, by “deception or intimidation,” permanently deprives the vulnerable adult of money or property.

The statute covers a broad range of conduct that could result in exploitation. Basically, if an elderly person is dependent upon you, relying upon you for advice or care, or you are serving in any other fiduciary role for a person suffering from the infirmities of aging, and you take money or property from them through “deception or intimidation,” you have committed elder abuse. The statute does not make exceptions for relatives. As a result, a son or daughter who obtains money from mom or dad by lying or acts of undue influence that rises to the level of intimidation, violates the statute.

In order to bring an action under the statute, the vulnerable person, or the vulnerable person’s guardian (or if the vulnerable adult has passed, his or her personal representative) must bring the action. Practically speaking, the requirement that the vulnerable adult or his or her legal representative bring the action against the exploiter can limit the effectiveness of the statute. Often, it is the very person who is exploiting the vulnerable adult who has the person isolated from family and friends. The exploiter is often the vulnerable adult’s power of attorney. If the vulnerable adult is isolated and cut off from family or friends, access to the vulnerable adult away from the suspected exploiter is difficult, if not impossible.

Remember, a “vulnerable adult” is not necessarily a person who is legally incompetent. If the person is incompetent, then any interested person can swear to such facts under oath and file a guardianship action to force the person to be examined. In Florida, a guardianship court appoints a three member panel, including at least one doctor, that examines the alleged incompetent person and reports to the court whether the individual is indeed incapacitated, in whole or in part.  If the court determines the alleged incapacitated adult is in fact incapacitated, then a guardian is appointed unless there are other reasons why one is not required.

However, if the vulnerable adult is not known or believed to be incompetent, the options for a concerned family member or friend are limited. Under section 415, the vulnerable adult or his or her guardian may sue the alleged exploiter for elder abuse. “Guardian” is defined as not only a court appointed guardian, but also a health care surrogate, or “pre-need” guardian (an instrument that a person signs to state who he or she wishes to act as their guardian in the event of incapacity). The vulnerable adult’s power of attorney can also bring the action on behalf of the vulnerable adult.

Unfortunately, there is a “flaw” in the statute. Often, the person believed to be the exploiter holds a position of fiduciary authority for the vulnerable adult.  For instance, it would not be unusual for the exploiter to be the vulnerable adult’s health care surrogate, or pre-need guardian.  In these cases, the fox is guarding the hen house and there is little a concerned family member or friend can do to save the vulnerable adult from the exploiter. Under the statute, only a few persons beside the vulnerable adult have legal “standing” to sue for the vulnerable adult.

However, the statute may contain the preverbal Achilles’ heel for an exploiter. A very common but powerful instrument in estate planning is the durable power of attorney and this instrument can be irresistible for an exploiter.  Florida recently overhauled the laws governing powers of attorney that makes the attorney in fact (also known as an agent) more accountable. Under Florida’s new Power of Attorney Act, section 709.2116(1), a court may review any act of a power of attorney, and may remove the agent or grant any other appropriate relief if the court finds that the agent breached his or her fiduciary duty. Furthermore, the statute provides for a wide range of persons who may petition the court to review the acts of an agent, including the guardian, trustee, and in some cases the health care surrogate, and most importantly “any other interested person if the person demonstrates to the court’s satisfaction that the person is interested in the welfare of the principal and has a good faith belief that the court’s intervention is necessary.”

If the exploiter has a power of attorney for the vulnerable adult, the power of attorney statute gives standing to others for the purpose of taking action against the exploiter. If you are a close friend or family member, you likely could go to court and show “standing” inasmuch as you are interested in the welfare of the principal and that you have a good faith belief that court intervention is needed. However, a “good faith” belief needs to be more than just a guess. It is likely going to require you swear under oath to certain facts that show the actions of the principal are not consistent with his or her normal actions, or the exploiter has taken actions to isolate the vulnerable adult from family and friends, to the point the vulnerable adult’s true status cannot be determined.

If you believe someone is being exploited, take action immediately. If you are not a close family member or friend, contact someone who is. Under Florida law, there is a legal obligation to report anyone who is exploiting a vulnerable adult to the Department of Children and Families. The hot line number is 1-800-962-2873. If you are a family member and believe your loved one is being exploited, take action immediately with competent legal counsel to review your options. Sometimes, family members wait too long and the exploiter is able to drain the vulnerable adult’s bank accounts and waste other resources. This is most often true when the exploiter is another family member. If the exploiter is not quickly stopped, the result can be devastating. The money is gone forever, and/or the cost of recovering the money is economically unfeasible.

If action is taken as soon as exploitation is discovered, there are many remedies a court can impose to recover the money or property taken. If the money taken from the elder can be traced to property bought with such funds, such as real estate, a “constructive trust” can be imposed. A constructive trust is a legal remedy the law imposes on property that is bought with funds from the victim whereby the property is essentially being held “in trust” by the wrongdoer for the victim. Other remedies include filing a lis pendens, which is essentially placing a lien on real property taken from the vulnerable adult, as well as the remedy of rescission or the unwinding of a transaction where fraud was involved in causing the transaction to take place.  Ultimately, a judgment will be rendered against the wrongful person which will allow collection efforts to begin. Common collection remedies include garnishment of bank accounts, foreclosure of real property to pay a judgment, and writs of execution on personal property.

Florida is a wonderful place for retirement. Fun, sun and waves, this state has it all. Unfortunately, there are those in society that will prey on unsuspecting vulnerable adults. Sadly, such persons are not limited to strangers. Often, and more likely, the exploiter will be a friend, caregiver, fiduciary or family members. If you suspect a loved one is being exploited, take action immediately by contacting an attorney to determine the best course of action.

For more information:
Contact Alexander Douglas, Esquire
Shuffield Lowman
Phone: (407) 581-9800

[i] by Cam Marston

Choose Wisely When You Consider Your Fiduciary and Your Estate Plan

Choose Wisely When You Consider Your Fiduciary and Your Estate Plan

One of the most common errors parents can make when doing their estate planning is not making the hard choice as to who they want to serve as their fiduciary.  Specifically, parents make the mistake of choosing among their children to serve as their fiduciary instead of choosing a bank or brokerage company with trust powers, or other non-family member.

Parents naturally do not want to show favoritism with regard to their children or indicate they lack any confidence in any particular child.  Often, the parent kicks the can down the road by simply choosing both of their kids, or even multiple siblings as co-fiduciaries, even knowing that they may have great difficulty working together.  This is a disastrous road to take.  Parents should not set their children up for failure if they know their children are not likely to be able to work together.

The following is the most common scenario.  Mother, being the last to die, changes her will to make her two daughters co-personal representatives of her estate and co-trustees (replacing her deceased husband who she had named in her prior will).  One daughter is strong-willed, the other is mild mannered. The daughters often had problems working together and even routinely fought as youngsters.  The mother, however, simply cannot bring herself to choose between her daughters.  As such, she wants to “recognize” both by making both daughters co-fiduciaries of her estate or trust.  The result?  The daughters, predictably, cannot work together and worse, actively take action to hamper and frustrate the other when they need to work together the most.  After the mother dies, all gloves are off and the daughters start litigating.   The result?  Tens of thousands of dollars of the mother’s estate intended to go to the benefit of her daughters is squandered in legal fees—all because the daughters were set up for failure by the mother in her estate plan.

What is the solution?  If your estate exceeds $1,000,000, a bank or brokerage company with trust powers is a good solution.  A professional fiduciary such as a bank or brokerage company can offer professional fiduciaries familiar with Florida law and who know how to navigate an estate administration and/or trust administration.  Having lost a parent is difficult enough, but having to administer an estate or a trust by a person unfamiliar with fiduciary responsibilities can be a burden that may not be appropriate for your children.  Moreover, by picking a bank or brokerage company, the parent avoids having to choose between their children so that no one is upset.  In essence, you will have given your kids a final gift of having a professional navigate the administration of your estate plan.

If your estate is less than $1,000,000, there are many smaller trust companies and/or certified public accountants that are willing to act as your trustee and/or personal representative.  Family harmony can be an important legacy that you leave by considering the simple realities of your family dynamics.  If in doubt, choose a third party fiduciary, not your family.