Regular readers of this column know that I consider the family member who takes on the responsibilities as trustee of a parent’s revocable living trust to have taken on serious obligations as opposed to having an honor bestowed upon them. Recent changes to the Florida statutes underscore this thought.
When a parent becomes incapacitated or dies, often they name one of their children to act as trustee to their revocable living trust. The child therefore takes on the burden of managing the trust assets and investments, paying the parent’s bills and filing tax returns to name just a few of the responsibilities.
Upon the parent’s death the child must then comply with the provisions of Florida law before making distribution to the beneficiaries under the terms of the trust. The trustee must first clear the creditors of the estate to ensure that all of the valid claims are paid, and ensure that all proper tax returns have been filed and taxes paid. Failure to accomplish these tasks may result in personal liability to the trustee.
New amendments to the Florida statutes also impose severe penalties for the trustee if she fails to disclose the trust and the beneficial interest to a beneficiary. In certain egregious situations, the beneficiary may have the ability to bring a lawsuit against the trustee for a period up to forty years after the termination of the trust!
Suppose, for example, that Grandma prepares a revocable living trust that names Daughter as the Trustee. The trust contains a distribution for Grandson after Grandma’s death. After Grandma’s death Daughter doesn’t want to make the distribution of the trust funds to Grandson as he has drug problems. Daughter is afraid that if Grandson gets a hold of the money, it will be used to purchase and consume narcotics.
Daughter therefore holds the money in a separate account and never tells Grandson about it. Under the terms of the new Florida statute of limitations, Grandson has up to forty years following the termination of the Trust to bring a lawsuit against Daughter, provided Grandson never had knowledge that he was a beneficiary of the trust.
While the illustration I describe above is extreme, and Daughter may have valid defenses for her actions, one can imagine less extreme cases of concealment where the trustee may be held liable for not providing a beneficiary information about his or her interest in the trust.
Another important change to the Florida statutes involves the trustee using trust assets to defend herself in a lawsuit. Normally, if the trustee is sued in her capacity as trustee of the trust, she may use trust funds to hire a lawyer to defend her actions. Florida statute §736.0802(10) restricts the ability of a trustee, against whom a beneficiary has filed a claim for breach of trust, to use trust assets to pay legal costs and expenses that result from defending the claim, if a party provides a reasonable basis for a court to conclude that the trustee has breached the terms of the trust.
The new version of the statute also requires a trustee, against whom a beneficiary has filed a claim for breach of trust, to provide written notice to each qualified beneficiary whose share may be affected by the use of trust assets for the payment of legal costs and expenses incurred in defense of such claim. The notice must also inform the qualified beneficiary of his or her right to petition the court to prohibit the trustee from using trust assets to pay such expenses.
This could result in the circumstance where a child who is acting as a trustee gets sued in her capacity as trustee by a sibling, step-sibling, or step-parent and could not use the trust funds to hire a lawyer to defend herself. If she doesn’t have significant means of her own to do so, then the lawsuit could devastate her financially.
When naming children or other family members to serve as trustee, keep these laws in mind and discuss them with your estate planning attorney. My firm’s clients who are enrolled in our Annual Maintenance Program will be invited to a workshop to discuss these issues. For more information log onto our website at www.sbshlaw.com.
©2008 Craig R. Hersch .Learn more at www.sbshlaw.com
One Comment
My sister is the trustee of our parents living trust. Two years later she won,t give me full disclosure and did not honor my request to sell my share of the mutual funds made prior to the market crash. She uses my parents house as a second home for her benefit. Do I have any recourse. I just want her to distribute my share and she wont.