Trust Litigation

Overview of Florida Trust Litigation

Traditionally, trusts are used by people who are seeking to avoid the courtroom because trusts may provide for distribution of assets at death (as well as during someone’s lifetime) and thereby avoid the need for a will which would require probating those assets through the courts.

Sophisticated property owners have successfully use trusts to hold their assets in a manner so that at the time of their death, very little, if any property remaining in their estate is subject to probate or to the provisions of their Last Will and Testament. In doing so, someone can successfully avoid probate court which saves their beneficiaries time, money and uncertainty because complaining people do not have a forum in which to object.

Duties of a Trustee and Limitations on Trustee Liability

Under Florida’s Trust Code, a trustee must administer the trust as a prudent person would, by bearing in mind the purposes, terms, distribution requirements, and other circumstances of the trust. In fulfilling this standard, the trustee is required to exercise reasonable care, skill, and caution, and the trustee should maintain an attitude of attentive concern for the proper administration or protection of the trust affairs and business. All of the duties of a trustee of an express trust are not contained within the trust agreement itself. The duty that the law places on all citizens, including trustees, to use due care to prevent injury and damages to others, which epitomizes the tort law of negligence, and applies to trustees. Although a trustee may be liable for damages for any loss suffered because he/she departed from the terms of an express trust, a trustee is not an insurer. Accordingly, a trustee is not strictly bound for the result of his actions irrespective of negligence. If he has exercised the appropriate care and diligence, he is not responsible for a mere mistake or error. Any other standard would place a burden on a trustee that no prudent person would ever assume. Provided a trustee has observed the applicable standard of care, he will not liable for mere judgment errors.

Unsurprisingly, a trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration pursuant to Florida Statutes section 736.0813. The trustee has to notify qualified beneficiaries of acceptance of the trust within 60 of receiving knowledge of an irrevocable trust or learning that a revocable trust has become irrevocable that the trust exists, the identity of the settlor, the right to receive a copy of the trust instrument, the right to an accounting, and a statement about attorney-client privilege. The trustee must also, within a reasonable amount time, give a full copy of the trust instrument to any qualified beneficiary who requests it. It is rudimentary that the trustee has the duty to account to the beneficiaries. An accounting must be given to qualified beneficiaries yearly and also on termination of the trust or upon the change of trustee. A beneficiary has the right to waive an accounting and can also withdraw a previous waiver. The accounting is required to meet the requirements for an accounting set forth in Florida Statutes section 736.08135. Regarding third parties the trustee should generally consider a trust to be confidential.

A trustee has a right and a duty to seek an accounting from his co-trustee for alleged improper disbursements made without the inquiring trustee’s knowledge or authority. For example in one case, the court found that a trustee was not liable to a beneficiary of a trust for a breach of trust committed by a co-trustee; however, this rule will not protect a co-trustee who is negligent in his actions toward a known breach by a co-fiduciary.

Where a trustee fails to keep distinct, clear and accurate accounts, all presumptions are against him or her and all obscurities and doubts will be resolved adversely to him or her. A fundamental principle in a proceeding for an accounting is that when issues are raised as to the necessity and scope of an accounting, the court must first determine that the moving party is entitled to an accounting.

Finally, under Florida’s Trust Code, absent a breach of trust, a trustee is not liable to a beneficiary for a loss or depreciation in the value of trust property or failure to make a profit. Also, if the taking place of an event, such as marriage, divorce, death, or the undertaking of educational requirements impacts the administration or distribution of a trust, a trustee who has exercised reasonable care to discover the happening of the event is not liable for a loss resulting from the trustee’s lack of knowledge.

Litigation to Remove a Trustee

There re numerous grounds to challenge a trust. Seeking to remove a trustee is the most impactful and aggressive litigation tactic employed. Under the Florida Trust Code, a co-trustee, the settlor or a beneficiary may ask the court to remove a trustee, or a trustee may be removed by the court on the court’s own initiative if

1. the trustee has committed a serious breach of trust
2. a lack of cooperation among co-trustees substantially impairs the administration of the trust;
3. because of the unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or
4. there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable co-trustee or successor trustee is available.

Hostility Not Enough to Remove Trustee

Hostility or dislike between a trustee and potential beneficiaries of a trust does not, by itself, constitute a ground for removal. The instrument creating a trust may validly provide for the removal of the trustee, for good and sufficient cause, by a beneficiary, the settlor, or another. Additionally, a court of equity has jurisdiction in its discretion to remove a trustee for good cause.

Where Do I File a Lawsuit?

Location for actions and proceedings concerning trusts are proper:

1. any county where the venue is proper under the Florida Statutes civil practice and procedure chapter on venue;
2. any county where the beneficiary suing or being sued resides or has its principal place of business; or
3. the county where the trust has its principal place of administration.4

The principal place of administration of a trust is the trustee’s usual place of business where the records pertaining to the trust are kept or, if he or she has no place of business, the trustee’s residence.

Caution: Statute of Limitations for Filing Claims Against Trustees

Florida Statutes section 736.1008 provides that a beneficiary must file a claim for any matter already disclosed in a disclosure document within six months of the time the beneficiary receives from the trustee the appropriate trust disclosure document or a limitation notice that applies to said disclosure document, whichever is received later. The trust disclosure document should be an accounting complying with the trust accounting standards set forth in section 736.08135, Florida Statutes, or other written report sufficiently disclosing the matter. The trustee’s limitation notice must notify the beneficiary that an action against the trustee based on any matter adequately disclosed in the disclosure statement may be barred unless the beneficiary commences proceedings against the trustee within six (6) months.

Commencement and Defense of Trust Litigation

Even though there is very little litigation involving trusts as opposed to that in probate proceedings, trust litigation does arise and when it does, you need to be ready. Whenever considered advisable by trustee, s trustee has the power to commence or defend, at the expense of the trust estate, any litigation impacting the trust or any property of the trust estate.

In order for provisions of a trust agreement to be objected to, an interested party must first start a lawsuit. The costs of the objector attorneys’ fees and court expenses and the burden of proof is on the objector. Win, lose, or draw, the objector will be paying attorney’s fees and court costs and may, in some circumstances, have to pay the trusts’ expenses in defending the suit.

All this may cause a potential objector to think twice before filing suit. In a probate proceeding an angry heir or creditor of the decedent can, with minimum or no cost, file a petition objecting to the will, appointment of the personal representative or other matter, or make a claim. Indeed, a single letter to the probate court judge could trigger hearings. Such an heir or creditor may have no grounds to make an objection or claim and may be doing so merely out of spite.

Involved in a Lawsuit?

Trusts are an effective and a powerful tool but are not guaranteed to avoid litigation. There may be appropriate instances when trustees, beneficiaries, or other people with an interest in the trust’s assets will attempt to challenge a trust, the acts of a trustee, or the soundness of the trust itself and lawsuits will be filed.

If you need help bringing or defending a lawsuit involving a trust, the Miami business lawyer Andrew J. Pascale can be of assistance.