Trust Administration

Trust administration goes hand-in-hand with estate planning, which is an area of law I have been practicing in Florida since 2006, and Ohio since 2012.  The reason for practicing trust administration is simple – if I know what trustees do right or wrong, what planning techniques create harmony or discord, and the pitfalls associated with actions that occur outside the overview of the courts, then I can be a better estate planning attorney.  In essence, it is about creating synergy between the areas of law I practice; this makes me more capable, efficient and better suited to serve those clients who hire me to create estate plans, the clients who hire me to guide them in carrying out their fiduciary duties, and the clients who hire me to defend their beneficial interests.

Contact Marshall Law today at (352) 432-8859 to discuss your particular trust administration issues and how we can assist you navigate this process more efficiently and effectively.

A trustee is obligated to strictly adhere to the terms of the trust and the Florida Trust Code; the trustee must use the trust assets for the sole benefit of the beneficiaries.  The performance of the trustee’s duties, and the procedures the trustee must follow, is known as “Trust Administration”.

Trust Administration will always involve three (3) different parties, which are the:

• Grantor – the person who created the trust;
• Trustee – the person or corporation tasked with administering the trust; and
• Beneficiary – the person or charity to receive the benefits of the trust.

The person creating the trust may simultaneously be the grantor, trustee and beneficiary when the trust is first created, but over time the grantor will eventually become unable to fulfill the trustee role due to either incapacity or death.  When this happens and a new trustee takes over, the process of “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.  According to the Florida Trust Code, trustees are mandated to fulfill the following duties:

•  Duty to administer the trust in good faith and in accordance with the express 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 beneficiary(ies) of the trust. S. 736.0802
• Duty to act impartially and without bias, giving due regard to each beneficiary(ies) respective 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 exercising 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, defend action and preserve trust property. S. 736.0811
• Duty to keep the trust beneficiaries informed with relevant information about the assets of 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, express the full sum of the duties and obligations a trustee must fulfill.  There are additional statutory requirements, plus the express terms of the trust document itself, that must be adhered to in order to ensure the trustee satisfies their legal obligations.

The particular steps or procedures to be followed in trust administration vary depending on the terms of the trust and who the beneficiary is.  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 radically 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, and since there are a number of different types of irrevocable trusts the manner in which assets are held, managed and distributed will greatly differ.

 This is where trustees get themselves in trouble; there is no single “checklist” to follow that applies to all trusts – the types and nature of trusts will vary from case to case.  As a result, without proper guidance trustees may read the trust but not understand its terms or fail to recognize the law lays additional duties on them beyond what is expressly written in the trust.  This can result in legal issues that will lead to additional fees and expenses, loss of assets and – the one I hate most – disharmony and distrust that tears families apart.

I often hear people (including other attorneys) state the purpose of having a trust is to make distribution of assets without the involvement of the courts and attorneys.  Statements like this are borne from a misunderstanding of why trusts are important and how they are managed.

F.S. 736.0816(20) authorizes every trustee the right to employ attorneys to advise and assist with the performance of the trustee’s duties.  This right cannot be abridged or challenged because the law recognizes a trustee’s duties are complex and guidance is recommended.  This same rule applies to retaining the services of other professionals including, but not limited to, accountants, financial advisors 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.

Every trustee should retain legal counsel to advise them throughout the trust administration process.  Administering a trust is not without legal duties and obligations, the failure of which can be disastrous to the beneficiaries and the trustee.  Here are just 2 examples of things that can go wrong if effective and competent legal counsel is not involved:

•  Trustee makes distribution of trust assets without satisfying legitimate creditor claims. A creditor sues the trust, so the trustee demands money back from the beneficiaries to cover the claim.  The beneficiaries, however, refuse to return enough money to cover the claim.  Therefore, the trustee must either cover the cost of the creditor claim out of their own pocket or sue the beneficiaries for recovery of assets necessary to pay the claim.
• Trustee fails to file a required tax return. Because a complete and accurate return was not filed the statute of limitations does not begin.  The IRS comes back years later and demands not only the unpaid taxes but interest and penalties.  The IRS pursues collection against both the trustee and the trust.

These are not hypotheticals; these are both real issues that occurred and for which I was retained to assist in cleaning up – had I been involved from the beginning I would have ensured neither of these situations occurred.  Throughout my career I have been retained not just to represent trustees from the beginning of a trust’s administration but brought in to help address trust administration issues after the fact.  And here’s the dirty little secret – retaining an attorney 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 be necessary for beneficiaries to retain an attorney to protect their beneficial interest throughout the entire trust administration process, it never hurts to meet with an attorney up front to understand what the trust provides, 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).

 Even if you do not retain an attorney up front, at any time during the trust’s administration if you feel you are not being treated properly, or feel you are not being provided adequate information from which to understand your rights under the terms of the trust, then retaining an attorney to serve as your liaison with the trustee is advisable.

 The one thing to keep in mind, however, is that an attorney representing a beneficiary is not paid from the trust.  The only time an attorney for a beneficiary will be paid from the trust is if the attorney provides a service to the trust that benefits all beneficiaries equally; in short, if they end up assisting the beneficiary push the trustee to perform a duty or procedure the trustee was obligated to perform.  Nonetheless, although you – as a beneficiary – may be paying “out of pocket”, knowing your rights and what you are entitled to brings a sense of comfort while also providing you with a resource that can hold the trustee accountable.