The Villages Trust Administration Lawyer: Trustee’s Fiduciary Duty

The Florida Trust Code and the terms of the written trust document govern the Trust administration process. Without proper vigilance, any number of issues may arise that could result in the loss of assets, unexpected taxes, expensive litigation and permanently damaged relationships. Meanwhile, a beneficiary needs to know their rights so they have a reasonable expectation as to how the trust will be managed and how they will be treated by the trustee. A trustee is required to adhere to the terms of the Trust and the Florida Trust Code. By law, the trustee must use Trust assets for the sole benefit of the beneficiaries identified in the Trust. The performance of the trustee’s duties, and the procedures the trustee must follow, is known as “Trust Administration.”

A deep understanding of Florida’s trust laws and the unique estate planning needs of residents in The Villages is essential for effective trust administration.

Trust administration always involves at least 2 of the following 3 parties:

• Grantor: The person who created the Trust
• Trustee: The person or corporation tasked with administering the Trust
• Beneficiary: The person(s) or charity to receive the benefits of the Trust

For a Revocable Living Trust, the grantor may also be the trustee and beneficiary when the Trust is first created, but eventually the grantor will become unable to fulfill the trustee role due to either incapacity or death. When this happens and a new – or successor – trustee takes over; this is when “Trust Administration” begins.

A “fiduciary duty” is any duty requiring a person to act in a legal and ethical manner for the benefit of another, making them responsible for managing the trust in accordance with its terms. According to the Florida Trust Code, trustees must fulfill the following fiduciary duties:

• Duty to administer the Trust in good faith and in accordance with the terms of the Trust and for the purposes set forth in the Trust. S. 736.0801
• Duty of loyalty to administer the Trust solely for the benefit of the beneficiaries of the Trust. S. 736.0802
• Duty to act impartially and without bias, giving due regard to each beneficiary’s interest. S. 736.0803
• Duty to administer the Trust in a prudent manner by considering the purposes, terms, distribution requirements, and other circumstances of the Trust and thereafter exercise reasonable care, skill, and caution when taking actions on behalf of the Trust. S. 736.0804
• Duty to take reasonable steps to protect the estate’s assets from waste, theft, damage, or mismanagement. S. 736.0809
• Duty to account and maintain records regarding the Trust’s administration, as well as the duty to keep assets of the Trust separate from the assets of the trustee. S. 736.0810
• Duty to enforce claims and preserve Trust property. S. 736.0811
• Duty to keep Trust beneficiaries informed with relevant information about the assets and liabilities of the Trust, as well as the ongoing operations of the Trust. S. 736.0813(1)(e)
• Coupled with each of these duties is an ethical component that demands a trustee not lie, cheat, steal, or defraud those to whom their duties are owed.

This list of fiduciary duties does not, however, contain all the duties and obligations that a trustee must fulfill. There are additional statutory requirements, plus the express terms of the trust document itself, that must be fulfilled to ensure that the trustee satisfies their legal obligations.

The steps or procedures to be followed in trust administration vary depending on the terms of the Trust and who the beneficiaries are. For Revocable Living Trusts, if the beneficiary is also the person who set up the trust (the “grantor”) the procedures to be followed will be different than the procedures followed after the grantor dies and the Trust becomes irrevocable. For Irrevocable Trusts, the nature and extent of a trustee’s duties and the procedures to be followed will be dictated by the terms of the Trust; since there are numerous different types of Irrevocable Trusts that can be formed, the way assets are held, managed and distributed will differ.

This is where trustees get themselves in trouble; there is no “checklist” to follow that applies to all Trusts. Without proper guidance trustees may inadvertently violate the terms of the Trust or the law. This can result in legal issues that will lead to additional fees and expenses, loss of assets and disharmony and distrust that affects family relationships. Unlike probate court, which makes documentation part of the public record, trust administration keeps details confidential, providing an incentive for individuals to consider alternatives to probate.

People, including other attorneys, often state that the purpose of a trust is to make the distribution of assets without supervision. Statements like this are born from a misunderstanding of why Trusts are important and how they are managed, including the complexities involved in managing trust assets.

F.S. 736.0816(20) grants every trustee the right to employ an attorney to advise and assist with the performance of the trustee’s duties. This right cannot be abridged or challenged because the law recognizes that a trustee’s duties are complex, and legal guidance is recommended. This same rule applies to retaining the services of other professionals, including, but not limited to, accountants, financial advisers and insurance agents. The reason this specific right is written into law is because the failure of a trustee to properly administer a Trust may result in the trustee being held personally liable – out of their own pocket – to the Trust’s beneficiaries or creditors.

Administering a Trust is not without legal duties and obligations. Failing to do them can be disastrous to the beneficiaries and the trustee. Here are just two examples of things that can go wrong if effective and competent legal counsel is not involved:

• The trustee makes distribution of Trust assets without satisfying a legitimate creditor claim. A creditor sues the Trust, so the trustee demands money back from the beneficiaries to cover the claim, but a beneficiary refuses to return enough money to cover their share of the claim. The trustee must either cover the cost of the creditor claim out of their own pocket or sue the beneficiary for recovery of assets.
• The trustee fails to file a required tax return. A year later, the IRS demands not only unpaid taxes but also interest and penalties; the IRS can pursue collection efforts against both the trustee and the trust’s beneficiaries.

Keep in mind that retaining a lawyer to clean up Trust mismanagement issues will always end up with higher fees than if effective legal counsel was retained up front.

While it may not always be necessary for beneficiaries to retain an attorney to protect their beneficial interests, it never hurts to meet with an attorney to understand the Trust’s terms, how the Florida Trust Code works, and what to expect out of the trustee (especially if the trustee is “going it alone” without legal counsel). At any time during the trust administration process, if a beneficiary believes they are not being treated properly or feel they are not being provided adequate information from which to understand their rights under the terms of the Trust, then retaining an attorney to serve as their liaison with the trustee is advisable.