Understanding the Fiduciary Duties of a Trustee

Understanding the Fiduciary Duties of a Trustee

ShuffieldLowman partner, Alex Douglas, also contributed to this post.

Once a trustee accepts trusteeship of a trust, there are certain fiduciary duties to the trust beneficiaries, according to the Florida Trust Code. Some of these fiduciary duties cannot be modified, regardless of how the trust is written.

What does it mean to accept a trusteeship? A written document expressly acknowledging his acceptance is the most obvious example. However, trustees should understand that acceptance of trusteeship can occur in other ways too.  This means a trustee is “on the hook” to comply with his fiduciary duties if he accepts trusteeship by substantially complying with a method of acceptance provided in the terms of the trust, or if the trust does not provide a method for acceptance of trusteeship, if he accepts delivery of trust property, exercises powers or performs duties as a trustee, or otherwise indicates acceptance of trusteeship. 

Once a trustee has begun acting as a trustee, he has a mandatory duty to administer the trust in good faith and in accordance with the terms and purposes of the trust, and in the interests of the beneficiaries.  The Florida legislature made a recent change to the definition of “interests of beneficiaries” to make it clear that the settlor’s wishes, as expressed in the trust, should be considered. This means that beneficiaries generally cannot circumvent a settlor’s wishes by claiming that their interest is best served some other way. For example, if a settlor expressed in the trust that he only wants a beneficiary to receive lump sum distributions at certain lifetime milestones (e.g., graduating from college, getting married, etc.), the beneficiary cannot alternatively demand trust distributions on a monthly basis.

Similarly, a trustee’s mandatory duty of loyalty requires him to administer the trust solely in the “interests of the beneficiaries,” and to avoid conflicts and self-dealing. Actions by a trustee involving a conflict of interest that are not specifically authorized by the trust or the Florida Trust Code, or otherwise approved by the Court, are voidable and may subject a trustee to liability to the trust beneficiaries.

Another fiduciary duty owed by a trustee is the duty of impartiality.  This does not necessarily mean that all beneficiaries should be treated equally.  Rather, the trustee should consider the facts and circumstances of each request or action, as well as the terms in the trust, when deciding the best way to proceed.  A trustee should not favor one beneficiary over another in conflicts that are merely between beneficiaries and do not relate to the validity of the trust.  In the case of Barnett v. Barnett, 340 So. 2d 548, 550 (Fla. 1st DCA 1976), a trustee’s litigation fees were denied because the trustee took a partisan stance and argued the side of one or more of the claimants.

In the event someone contests the validity of the trust, the trustee has an obligation to defend the trusts’ validity surprisingly, while there is no statute. A trustee also has a duty to keep clear, distinct, and accurate records.  As part of this duty, a trustee should also make sure that he is keeping trust property separate from his own property. If inadequate recordkeeping results in any obscurities or doubts, all presumptions are against the trustee. It is important for trustees to document each decision made and why the decision was made. 

Trustees should also consider making and keeping records simultaneously with the actions taken to avoid any doubt concerning accuracy. If a trustee is seeking compensation, he or she must keep accurate time records. If the trust does not specify how the trustee should be compensated, the trustee is entitled to compensation that is reasonable under the circumstances. The burden will be on the trustee to show the reasonableness of his or her fees.

If there is a lack of documentation, there is a presumption of impropriety against the fiduciary. Even saying that a hurricane blew away your records is not an excuse! Really! In Traub v. Traub, the Court held that, because the trustee failed to keep accurate records, even though the records were allegedly destroyed, the burden shifted to the trustee to show that the trust money expended was proper.

Next, a trustee has a duty to keep beneficiaries informed regarding the administration of the trust and to provide accountings. Initially, a trustee must notify qualified beneficiaries of the existence of the trust, identify himself as the trustee, and explain the beneficiaries’ right to receive trust accountings. Other mandatory duties of the trustee are to provide a complete copy of the trust and to account to qualified beneficiaries by providing a trust accounting at least once annually. Additionally, if a qualified beneficiary of an irrevocable trust requests relevant information about the assets, liabilities, or particulars relating to the trust administration, a trustee has a mandatory fiduciary obligation to provide the requested information. However, as long as a trust is revocable, the trustee’s duty is only owed to the settlor (the person who made the trust) of the trust.

Another important fiduciary duty is the duty of prudent administration.  There is no “winging it” when it comes to trust administration.  A trustee must administer the trust as a prudent person would, by considering the purposes, terms, distributions, requirements, and other circumstances of the trust.  Trustees must exercise “reasonable care, skill, and caution.”  If a trustee is unsure whether certain action (or inaction) is the best choice, he should investigate and seek all information necessary to make an informed decision.  This is good advice even if all beneficiaries consent to the action or inaction– trustees still need to make sure their discretionary actions make sense and are in the best interest of the beneficiaries as defined by the trust.

During the course of prudent administration of the trust, the trustee should only incur reasonable expenses.  A trustee should consider what is reasonable for him to do on his own, versus what is better for a professional to do.  If a trustee is hiring an outside vendor to perform a task (e.g., accountants, attorneys, etc.), he should negotiate a reasonable fee for the work needed. If a trustee has his own set of special skills, he will be expected to use that set of skills. A corporate fiduciary will be held to a higher standard than an individual.  Fair compensation should be based upon the trustee’s particular skills.

When it comes to hiring third parties, a trustee must choose wisely. He should investigate the background of all professionals and agents hired, including attorneys, accountants, investment advisors or other agents.  Generally, a trustee may act on the recommendations of such persons without independent investigations.

Finally, when it comes to claims of creditors, a trustee has a mandatory obligation to file a notice of trust upon the settlor’s death.  A trustee must also pay expenses and obligations of the settlor’s estate, in the event the assets of the settlor’s estate are not sufficient to satisfy valid creditors’ claims. 

Navigating this process can get complicated, so should you have any questions regarding the duties of a trustee, feel free to contact one of our highly-qualified and experienced trust attorneys.   

Learn about protecting yourself as a trustee in our other blog post: How to Protect Yourself as a Trustee.

Florida Landlord Laws on Abandoned Property in 2019

Florida Landlord Laws on Abandoned Property in 2019

After a tenancy has been terminated or expired, and the premises have been vacated by the tenant through eviction, surrender, abandonment, or otherwise, a landlord may find himself in possession of abandoned personal property which remains on the premises.  Although a landlord may be tempted to immediately sell or dispose of the abandoned property, he may be subject to liability if he does not follow the proper procedures outlined by Florida law.  The Disposition of Personal Property Landlord and Tenant Act provides the necessary guidance to avoid liability under these circumstances.  See § 715.10, F.S., et  .

Any personal property left behind should be left on the premises or stored safely by the landlord.  A landlord has a duty to exercise reasonable care in storing the property, but he is not liable to the tenant or owner of the property for any loss.

 

Florida Abandoned Property Notice – How to Use

The first step a landlord should take to properly dispose of personal property is to notify the tenant, and any other person the landlord reasonably believes to be the owner of the abandoned property, that such property remains on the premises.  The notice should be in writing, and it should describe all of the property left behind.  The description should be detailed enough so that the owner of the property can identify it.

The notice should also notify the owner of the property where the property is being stored (if not remaining on the leased premises), and that reasonable costs for storage may be charged before the property is returned.  There should be specific information as to where the property may be claimed and the date before which claim must be made.  Such date must be a minimum of ten or fifteen days away, depending on how the notice is served.  The Florida Statutes provide sample notice forms that should be used.

If the owner of the property, or anyone reasonably believed to be the owner, pays the costs of storage and acts to take possession of the property on or before the date specified in the notice, the landlord should release the property.

 

When is Property Considered Abandoned in Florida?

If the owner of the property does not respond within the time frame allotted, the landlord may take action to sell or dispose of the property.  If the abandoned property is estimated to be worth less than $500.00, the landlord is free to dispose of it however he would like.  If the estimated value of the abandoned property exceeds $500.00, the landlord should arrange for a public sale of the property at the nearest suitable place to where the property is held or stored.  Before the sale may occur, notice should be published once a week for two consecutive weeks in a newspaper of general circulation where the sale is to be held.  The advertisement should include the name of the former tenant, a description of the property to be sold, and the time and place of the sale.

A landlord is permitted to bid at the public sale.  The successful bidder’s title to the property is subject to ownership rights, liens, and security interest which have priority by law.  After the costs of storage, advertising, and the sale have been deducted from the proceeds of the sale, the balance may be claimed by the tenant or property owner within thirty (30) days.  If the funds are not claimed, they must be paid into the county registry.  At that time, the landlord should be relieved of all further obligations regarding the abandoned property.

There may be similar circumstances where someone is looking to dispose of personal property even when the parties are not connected through a traditional landlord-tenant relationship.   Although Chapter 715, Florida Statutes, does not expressly state whether this procedure applies in a situation not involving a landlord and tenant, it would seem reasonable to follow this procedure before disposing of unwanted property in order to avoid liability.  It should also be noted that Florida law provides a separate procedure for items abandoned on public property, which involves law enforcement taking possession of the items and auctioning them.  See Chapter 705, Fla. Stat.

This article provides an overview of the process for a landlord to dispose of property left at the premises by a former tenant.  You should contact an attorney to determine whether this process is appropriate for your individual situation, and to obtain all of the information necessary to ensure compliance with applicable Florida law.