estate planningTo accept appointment as the trustee of a trust is to undertake a position of great responsibility and significant potential liability. Abuse of these duties can do real harm to beneficiaries as well as violence to the intentions of the trustor who founded the trust in the first place. Trustees should be chosen with care, and their responsibilities should be fully explained to them.

The duties of trustee and the remedies available to those harmed by their abuse (such as trust beneficiaries) were originally established under general common law and have been stated more specifically in the Florida Trust Code. The following is a general overview of these duties.

Trustee Duties

In interpreting the following duties, keep in mind that under Florida trust law, a trustee is held to stricter ethical standards than those that are dictated by general business ethics. Honesty alone is not enough – a trustee must act in an extraordinarily scrupulous manner.

The duty of loyalty – A trustee must act solely in the interests of trust beneficiaries. He may not harm the interests of any beneficiary even if this means opposing the wishes of the beneficiary himself. And he may not profit from any trust transaction even if no beneficiary is harmed. A trustee is entitled to financial compensation if so authorized by the trust document.

The duty of care – A trustee must secure and safeguard trust assets with the same level of care that a prudent person would exercise in safeguarding his own assets. In some cases, this translates into a positive duty. A trustee may be obligated to invest trust assets if it can be done so prudently, and failure to do so could be interpreted as a breach of the duty of care.

The duty of accounting – A trustee is obligated to provide beneficiaries with a written accounting of all trust assets by recording investments, improvements, losses, and expenses. An accounting must be provided (i) at least once a year, (ii) when the trust is terminated, (iii) when a trustee is changed, and (iv) as otherwise specified in the trust instrument.

The duty of compliance – A trustee is obligated to strictly obey the terms of the trust as set out in the trust instrument. Of course, many trust instruments grant the trustee considerable discretion in managing trust assets. Where discretion is permitted, the trustee’s actions are governed by the duty of care. Problems might arise when the terms of the trust instrument itself are ambiguous, which is one of the reasons why trust instruments must be drafted with great care.

The duty to distribute trust assets – The trustee must distribute trust assets as specified in the trust document. Where he has been granted discretion, he may not unfairly withhold or delay distributions to beneficiaries.

The duty to pay taxes on trust assets – If trust assets are subject to taxation, it is the trustee’s responsibility to keep financial records, fill out tax forms, and pay the taxes out of trust assets – unless the trust instrument has delegated this responsibility to someone else. Of course, the assets of certain types of trusts are not subject to taxation.

The duty to notify – The trust instrument will probably require the trustee to issue certain notices to beneficiaries and others. Certain notices are required by law (if a new trustee is appointed, for example). Notice must be given by the means specified in the trust instrument or, if there is no specified means, in a reasonable manner.

The duty of impartiality – The trustee cannot play favorites among beneficiaries, even where the trust instrument grants him discretion. This does not mean that he must treat all beneficiaries equally. The trust instrument may authorize or even require unequal treatment. And where the trustee has discretion, he may be required to take into account the differing needs of various beneficiaries.

The duty to segregate trust assets – Co-mingling of trust assets with the trustee’s personal assets is ill-advised, illegal, and dangerous. In fact, it might even result in criminal liability. The trustee must keep cash assets in separate bank accounts, for example.

The duty of confidentiality – The trustee must maintain the confidentiality of trust matters and matters relating to beneficiaries. Certain exceptions exist, of course (e.g. a trustee is not expected to maintain confidentiality), if the trust instrument or the law requires disclosure. Generally speaking, common sense applies and information, if distributed at all, is done on a “need to know” basis.

The duty of non-delegation – A trustee has a general obligation not to delegate his duties to a third party if he is capable of performing these duties on his own. In some cases, such as investing trust assets, it is permissible to use the services of an advisor who possesses expertise that the trustee lacks.

The duty to enforce and defend against claims – The trustee must enforce any claims the trust has against a third party (e.g. a debtor to the trust, such as a tenant living in a trust-owned residence). The trustee must also defend against claims made against the trust by third parties.

The foregoing list is incomplete, and it does not take into account the consequences of the interaction between the various trustee duties. Consult a trust lawyer if you have any questions.

Remedies for Breach of Fiduciary Duty

A trustee can be held liable for negligence, reckless indifference, and intentional misconduct. Remedies include:

  • A court order requiring that an accounting to be provided to beneficiaries
  • A court order requiring distributions to beneficiaries
  • A court order compelling any other action that the trustee is obligated to perform
  • Denial of trustee fees
  • Removal of the trustee
  • Compensation for damages to the trust or for profits gained by the trustee arising from misconduct
  • Assessment of attorney’s fees against the trustee
  • Criminal liability (in extreme cases such as embezzlement)

Call the Trust Professionals

The sooner you seek the services of a professional, the lesser the likelihood that you will fall victim to one of the numerous potential pitfalls that frequently bedevil the execution of trusts years or even decades after the trust was created. In particular, careful planning is needed to minimize the risk of trust litigation down the road.

Contact the trusts and estates attorneys at Beller & Bustamante, either online or by telephone at (904) 288-4414, to schedule a no-obligation consultation.We serve clients throughout Greater Jacksonville area including St. Johns County, Clay County, and more.