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How to Decant to a Special Needs Trust

How to Decant to a Special Needs Trust

In 2018, Florida revised the ability to more easily modify existing trusts.  Basically, now there are three separate ways that a trustee may engage in a decanting, a general term used to describe the trustee of an existing trust creating a new, second trust, and moving all assets of the old trust into the new trust.

1. A trustee may decant if they are given “absolute power” over distributions in the trust instrument. This method of decanting provides the most flexibility for all parties.

2. A trustee without “absolute power,” such as a distribution power limited by the ubiquitous health, education, maintenance and support, or “HEMs,” standard may decant. This method must comply with a more rigid standard.

3. A trustee may decant from any trust that does not qualify as a “supplemental needs trust” to a trust that does qualify as such. There are important limitations for this type of decanting as well. 

You can read more about the ways a trustee may decant a trust in our other article: Decanting Trusts In Florida.

New statutes in Florida for special needs trusts

The new statute provides that a trustee who has the power “to invade the principal of the first trust to make current distributions to or for the benefit of a beneficiary with a disability may instead exercise such power by appointing all or part of the principal of the first trust in favor of a trustee of a second trust that is a supplemental needs trust.”  A “beneficiary with a disability” is defined as “a beneficiary of the first trust who the authorized trustee believes may qualify for government benefits based on disability, regardless of whether the beneficiary currently receives those benefits or has been adjudicated incapacitated.”  A “supplemental needs trust” is defined as “a trust that the authorized trustee believes would not be considered a resource for purposes of determining whether the beneficiary who has a disability is eligible for government benefits.”  That provides a great deal of flexibility in the trustee being able to create a second trust that qualifies as a supplemental needs trust, however, there are requirements specific to this type of decanting.

There are many situations where decanting to create a supplemental needs trust will be desirable.  For example, what if mom and dad create a trust that is irrevocable after their death and this trust benefits their three children?  The trust lasts for the life of the beneficiaries and allows the trustee to distribute from income or principal to the beneficiaries for their health, education, maintenance, and support. 

If after the death of their parents, one of the children is involved in an accident or suffers a brain injury with permanent damage, then the terms of the trust will no longer be the best structure.  Through decanting, an authorized trustee could create a second trust that is a supplemental needs trust for the benefit of the child with the disability and move one-third of the first trust’s assets to it through decanting.  Another second trust could be created for only the other two children who have no disability (with all other terms being the same as the first trust) and two-thirds of the first trust’s assets moved to it through decanting.  After the decantings, the disabled beneficiary may qualify for government benefits because the first trust would have been “counted” as a resource while the second trust will not.  Additionally, the beneficial interests of the other children in their new trust are substantially the same as before the decantings occurred.

Questions to consider before decanting a special needs trust in Florida

When considering decanting in the context of special needs trusts, ask these initial questions:

  • Is there a compelling reason to decant? (Will the exercise of the power further the purposes of the trust?) Perhaps the existing trust terms will prevent a beneficiary with a disability from qualifying for government benefits.
  • Is the trustee an authorized trustee (not a settlor or beneficiary)?
  • Does the trustee have the power to invade the principal of the trust?
  • Is the beneficiary under a legal disability or does the trustee reasonably believe the beneficiary is incapacitated?
  • Is the proposed supplemental needs trust one that the trustee believes would not be considered a resource for purposes of determining whether the beneficiary who has a disability is eligible for government benefits?
  • Does the supplemental needs trust benefit the beneficiary with a disability?
  • Is the second trust’s beneficial interest substantially similar to the beneficiary’s interest under the first trust? In other words, you cannot substantially change the interests of any beneficiary; the only exception being that the interests of the beneficiary with the disability need only qualify as a supplemental needs trust would normally provide and likely their interests will be changed very substantial in order to qualify.
  • Are the beneficiaries of the second trust also beneficiaries of the first trust? In other words, you cannot add new beneficiaries.

If you have answered yes to any of the above questions and are interested in learning more about the expanded opportunities for fixing your special needs trust, please feel free to contact us.  

Decanting Trusts in Florida – When and How

Decanting Trusts in Florida – When and How

Is that irrevocable trust you created, or somebody created for your benefit, really set in stone? Prior to 2007, the answer would mostly be yes, but between 2007 and now, the answer became more complex.  Modifications without going to court are now more easily done, with certain limitations. One of the easiest methods of modifying an irrevocable trust is to use a doctrine called decanting. Decanting is a general term used to describe the trustee of an existing trust creating a new trust (also referred to as the “second trust”) and moving all assets of the old trust into the new trust. The result is that the old trust is terminated, and the new trust provisions govern use of the trust property.

A trustee may have various reasons to decant. It may be to convert a trust to a supplemental needs trust, to correct drafting mistakes, to make needed clarifications, or to adapt to changes in circumstances or in the law. Decanting can transform an irrevocable trust without the need for judicial modification. The catch with decanting, has always been that under prior Florida law, very few trusts contained the appropriate powers to allow a trustee to decant.

Florida has allowed decanting since 1940, but it was limited to a trustee who has the “absolute power” to invade the principal of the trust.  In other words, if the trustee has sole and absolute discretion regarding their distribution power over the principal of a trust and that discretion was not tied to any ascertainable standard (i.e. health, education, maintenance and support of the beneficiary), then that trustee has “absolute power.” Due to that limited framework, and changes in estate planning practice over the years, the number of trusts for which decanting was even possible was quite small.

The 2018 Florida decanting statute revision

However, in 2018, Florida revised the decanting statute in many significant ways. Now, there are three separate ways that a trustee may engage in a decanting:

  1.  A trustee may still decant if they are given “absolute power” in the trust instrument. This method of decanting provides the most flexibility for all parties.
  2. A trustee without “absolute power” may decant; such as a distribution power limited by the ubiquitous health, education, maintenance and support, or “HEMs,” standard. In this scenario, the trustee’s ability to have different provisions in the new trust will be limited, as discussed below.
  3. A trustee may decant from a trust that does not qualify as a “supplemental needs trust” to a trust that does qualify as such. There are important limitations for this type of decanting as well. 

One very important concept for clients and attorneys to discuss is whether the client would be opposed to a future trustee engaging in decanting. Decanting is now a default power of all trustees.  If the client does not want changes made to their plan in the future, then the drafting attorney may include a broad prohibition against decanting to effectively prevent the trustee from being able to effectuate that type of transaction.

In order to exercise the decanting power, the trustee must be an “authorized trustee.”  Generally, that will be a trustee who is not the grantor of the trust or who is not also a beneficiary of the trust.  If decanting is something that the grantor would like available as an option to deal with the unknown future, but they will only be naming trustees who are also beneficiaries, then a power should be included to allow that trustee to appoint a special co-trustee to exercise the decanting power granted in the trust (or by Florida statute). 

What are the different types of decanting?

If a trustee may distribute trust property in any amount and at any time in that trustee’s sole discretion, then they have “absolute power.”  While there are limits on how the second trust may differ, the trustee has the broadest authority in this situation. They may divide up interests of multiple beneficiaries, add additional guidance on trust distributions, change trustee succession, and more. Thus, the trustee can change substantive and administrative provisions.

If a trustee does not have “absolute power” because, for instance, they may distribute only for a beneficiary’s health, education, maintenance and support, then the changes in the second trust are much more limited. The changes in this situation are more likely to be limited to administrative issues, i.e. trust succession, investment powers, etc.

A trustee who has the power “to invade the principal of the first trust to make current distributions to or for the benefit of a beneficiary with a disability may instead exercise such power by appointing all or part of the principal of the first trust in favor of a trustee of a second trust that is a supplemental needs trust.” That provides a great deal of flexibility in the trustee being able to create a second trust that qualifies as a supplemental needs trust (also called a “special needs trust”). However, there are requirements specific to this type of decanting which you can learn more about in another article we wrote: How to Decant to a Special Needs Trust.

It is important to note, the exercise of the decanting power may not: (i) increase the authorized trustee’s compensation beyond the compensation specified in the first trust instrument or (ii) relieve the authorized trustee from liability for breach of trust or provide for indemnification of the authorized trustee for any liability or claim to a greater extent than the first trust instrument.  However, the exercise of the power may divide and reallocate fiduciary powers among fiduciaries and relieve a fiduciary from liability for an act or failure to act of another fiduciary as otherwise allowed under law or common law. 

Also, there are many other important tax considerations when it comes to decanting and it is important to ensure you are receiving the appropriate level of advice for this sophisticated area of trust and tax law.  First, the topic of decanting is on the “no rule” list for the IRS.  This means that it is not possible to request a private letter ruling and receive the IRS’s stamp of approval before engaging in a decanting.  Further, there are many tax traps for the unwary and each situation is unique, requiring special attention to tax issues.

Considerations before decanting in Florida

  1. The “absolute power” requirement in the prior statute is no longer a strict absolute requirement. Even if the trustee’s powers to invade principal are limited to an ascertainable standard, the power to decant can still exist.
  2. Although the new statute requires that a beneficiary be disabled to decant into a supplemental needs trust, decanting does not depend upon whether the beneficiary is currently eligible for government benefits or has been adjudicated incapacitated. Rather, a trustee must believe that the beneficiary may qualify for governmental benefits based on his/her disability or the trustee reasonably believes the beneficiary is incapacitated.
  3. While decanting rules have expanded, the notification rules have become stricter. There is a 60-day written notice requirement and the statute carefully outlines who must be notified of a trustee’s intent to decant and what documentation must be sent and received to satisfy its requirements. It does allow for a written waiver of the notice period to shorten the time frame to allow the trustee to act immediately. It is important to note that the 60-day notice require does not limit the right of any beneficiary to object.

In conclusion, Florida has greatly expanded the opportunities for a trustee to decant a problem trust.  The decanting process should include the trustee consulting with competent legal and tax advisors as well as the beneficiaries and interested parties to ensure the outcome is beneficial to all parties and complies with the law.  If you are a trustee of beneficiary and would like to know more about your options with decanting, please feel free to contact us.

Is Your Website ADA Compliant? What Florida Companies Need to Know

Is Your Website ADA Compliant? What Florida Companies Need to Know

The Americans With Disabilities Act (“ADA”) was enacted in 1990 to prohibit discrimination against individuals with disabilities in all areas of public life, including in employment, schools, transportation and all public places and private places that are open to the public.  Title III of the ADA regulates public accommodations and services operated by private entities, and is the basis for a new wave of “website accessibility” claims.

ADA public accommodation accessibility claims

Traditionally, public accommodation accessibility claims involved unannounced visits by individuals with one or more disabilities to places of business (typically restaurants, hotels, and other retail establishments) to ascertain whether such public accommodations were in compliance with the ADA.  Many of these “visits” were undertaken by either representatives of interest groups or “testers”, who may not have even lived close to or otherwise frequented such places.  Numerous lawsuits resulted, with Florida being a hot spot for such activity.

With the advent and proliferation of websites and the internet, issues were raised as to whether company websites were within the scope of the ADA and, thus, whether they had a duty to code their websites to be accessible to visually impaired and hearing impaired persons.  Despite the fact that the Department of Justice, regardless of its repeated pronouncements, has failed to enact regulations governing the accessibility of websites, claims have been brought against companies for their alleged lack of website accessibility compliance under the ADA.  These claims have accelerated and expanded in number.  Once again, Florida is at the top of the pack in the number of these lawsuits

The law continues to develop in this area, but it is now reasonably established that if a business operates a “brick and mortar facility” somewhere, which is open to the public, then a website of such business is, or is part and parcel of, a public accommodation and subject to ADA requirements.  Failure to adhere to those “requirements” exposes the business to the standard ADA remedies, including injunctive relief and plaintiff’s costs and expert witness and attorney’s fees.  This is in addition to, of course, a business incurring its own attorney’s and expert’s fees and other costs in defense of such action.

ADA requirement for websites – WCAG 2.0

So what are the ADA “requirements” in this regard?  In the void created by the absence of Department of Justice regulations, courts have looked to private industry and associations for an applicable standard as to website accessibility for the visually impaired.  In this regard, certain courts have looked to and even embraced the Worldwide Web Consortium’s Web Content Accessibility Guidelines 2.0 (“WCAG 2.0”) as the standard to be met.

Like their predecessor “testers” or “drive-by visitors”, generally speaking, plaintiffs who file these website accessibility claims tend to be repeat or serial filers.  As opposed to their predecessors, however, they do not have to actually visit the company facility (or even leave their house or apartment); rather, all they need to do is access the company’s website from wherever they are.  Typically, they do so in the presence of their chosen expert and videotape their maneuvering through the website and the claimed obstacles and deficiencies therein.  Thus, many times these cases come “readymade” upon filing.

Given the above, it is best to address these cases promptly.  Of course, the best defense would be to have an ADA compliant website (to the extent possible).  Care in selecting website programmers and coders is warranted, as WCAG 2.0 has many specific requirements, and consultants must be familiar with them and be able to test compliance appropriately.  The experience of many businesses in this regard, as to self-described consultants or experts in the area, has been very uneven.  This can be quite a problem, as there are cases where a company’s expert has been rejected, and also cases that hold that efforts to bring a website into compliance, that have not been finalized, do not stay litigation or preclude further litigation against the company, as to the same website, by another plaintiff.

Shuffield Lowman stands ready to assist companies and clients with respect to these issues.  Indeed, Shuffield Lowman early on took the lead itself in having its website audited and brought into compliance, and certified in accordance, with WCAG 2.0 AA standards.

Alex Douglas Featured on The Florida Bar Podcast

Alex Douglas Featured on The Florida Bar Podcast

ShuffieldLowman’s Alex Douglas was recently featured on The Florida Bar Podcast to speak about the latest elder law and estate planning updates. Listen to this episode to hear about qualified beneficiaries, homestead issues, guardianships, irrevocable trusts, and even estate planning for pets. Alex practices in the area of fiduciary litigation with extensive experience in trust, probate and guardianship litigation.

To listen to the podcast visit the Legal Talk Network website:  https://legaltalknetwork.com/podcasts/florida-bar/2019/06/florida-bar-annual-convention-2019-elder-law-and-estate-planning-updates/

Orlando Business Journal Names ShuffieldLowman a 2019 Readers’ Choice Winner for Best Local Law Firm

Orlando Business Journal Names ShuffieldLowman a 2019 Readers’ Choice Winner for Best Local Law Firm

The Orlando Business Journal’s readership recently voted ShuffieldLowman the area’s best local law firm.

Earlier this year, OBJ readers were invited to submit votes in several categories in Orange, Seminole, Osceola, Lake, Brevard and Volusia counties for the 2019 Readers’ Choice Awards.  Thousands of readers participated and then the top finalists in each category went head-to-head in an OBJ Business Pulse poll.  The results were will be published in the OBJ’s July 5 weekly edition and is already posted online at OrlandoBusinessJournal.com.

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.