Probate Section Report
Larry E. Ciesla

Featuring: Florida’s New Trust Code - Part III

This will be my final report on the new Florida Trust Code. Previous articles covered Parts I-V of the Code. This Article highlights significant provisions found in Parts VI-XIII. Part VI deals with revocable trusts and, as such, should be of concern to all practitioners in the field of trusts. It begins with a new provision, Section 736.0601, Florida Statutes, clarifying that the capacity required to execute a valid trust is the same as that required to execute a valid will. This is followed in Section 736.0602(1) with a statement that the default rule, where a trust does not specify whether or not it is revocable, is that the trust will be deemed revocable.

Next, we have some provisions which are almost guaranteed to produce subsequent litigation. Once such provision is contained in Section 736.0602(2), which provides that if there is more than one settlor (ie: husband and wife), each has the right, independent of the other, to revoke or amend the trust as it pertains to that settlor’s contribution of the trust assets.

I cannot even begin to imagine how this would work in real life in cases of assets owned by the entireties. Another such provision permits revocation or amendment by execution of a will or codicil, executed after the trust, which devises property, “...that would otherwise have passed according to the terms of the trust...” See Section 736.0602(3)(b)(1), Florida Statutes. Thus, apparently, under the new Code, one may dipose by will of assets titled to a revocable trust. Again, I’m not sure this makes any sense, but I suppose we all need to be aware of it. Also, on the subject of revocability or amendment, Section 736.0602(5) specifically recognizes that such may be accomplished by the holder of a power of attorney as provided in Section 709.08(7)(b)(5) (providing that such is permissible when expressly authorized in the power of attorney). The same is true in the case of a guardian of the property acting with court approval. See Sections 736.0602(6) and 744.441(19), Florida Statutes. One of the most important aspects of revocability is that the settlor is the only person to whom the duties of the trustee run, for so long as the trust remains revocable. See Section 736.0603(1), Florida Statues. This is a restatement of existing law, albeit one over which there has been some confusion in the past.

A new provision found in Section 736.0604 allows a trustee to invoke a six-month statute of limitations for the filing of an action to contest the validity of a formerly revocable trust. This provision is very similar to the right of a personal representative to invoke a three-month limitation for persons desiring to file a will contest.

Part VII of the Code deals with trustees. Many of these provisions are straightforward. A person named to serve as trustee may accept or decline to serve. If acceptance is not forthcoming within a reasonable amount of time, he, she or it will be deemed to have declined to serve. Section 736.0702 gives the court the right to overrule a requirement in the trust that the trustee post bond, if the court determines a bond is not necessary to protect the interests of the beneficiaries. Section 736.0703 deals with co-trustees. If there are more than two co-trustees, they may act on behalf of the trust by majority vote. A co-trustee may avoid liability for actions deemed inappropriate by notifying the other co-trustees of the dissent prior to the time of the action to be taken. The Code imposes an affirmative duty on the part of each co-trustee to prevent other co-trustees from committing a breach of trust and to compel other co-trustees to redress a breach of trust.

Section 736.0706 addresses removal of a trustee. A settlor, co-trustee or a beneficiary may seek removal of a trustee. In an expansion of existing law, multiple grounds are set forth justifying removal. These include: commission of a serious breach of trust; a lack of cooperation among co-trustees which substantially impairs the administration of the trust; miscellaneous situations where removal would best serve the interests of the beneficiaries; where there has been a substantial change of circumstances or where removal has been requested by all qualified beneficiaries. The latter ground calls to mind a case in which I was involved in many years ago wherein an institutional trustee was removed when they closed their Gainesville office in a case where my elderly client enjoyed the security of being able to drop by the trustee’s office on a regular basis to chat about her trust, just as many elderly people like to drop by their bank or brokerage office on a regular basis.

Section 736.0708 covers compensation of trustees. This section states that a trustee is entitled to reasonable compensation, but in a carryover from existing law, no specific amount or percentage is given. The court is given the authority to increase or decrease any fee specified by the trust instrument (which will typically state that an institutional trustee shall be paid in accord with its regularly published fee schedule; or that an individual trustee shall be compensated in accord with the prevailing rates paid to institutional trustees serving in the same community).

Part VIII deals with the duties and powers of a trustee. These provisions substantially re-state existing law and cover the usual duties of good faith; loyalty; impartiality; etc. There are specific provisions which may be followed for a trustee to obtain court approval to enter into a transaction involving a potential conflict of interest, such as sale of a trust asset to the trustee individually. The specific duties and powers of a trustee set forth in this part of the Code are extremely numerous and at times very lengthy. This is one area where trust practitioners will need some time for a detailed study. For example, see Section 736.0816 for a list of twenty-five specific powers granted to a trustee.

Part IX of the Code consists of a single sentence, directing a trustee to “...invest trust property in accordance with Chapter 518" (Florida’s Prudent Investor Law). Part X deals with trustee liability. Again, this section is very lengthy and will require specific study. For example, Section 736.1001 provides a laundry list of approximately a dozen options available to a court in remedying a breach of trust. Section 736.1001 sets forth the method for calculating the amount of money damages which may be assessed against a trustee, and also provides that contribution is available to such a trustee in cases where more than one person is liable for damages. Contribution is not available in the case of a bad faith breach of trust; nor to the extent of any personal benefit received as a result of the breach. As under existing law, attorney’s fees and costs shall be awarded, “ in chancery actions...”, which essentially means the prevailing party is entitled to recover fees unless equity dictates otherwise. See Section 736.1004 and In re: Estate of Simon, 549 So.2d 210 (Fla. 3d DCA 1989). Under Section 736.1005, an attorney whose services have benefitted a trust may obtain an award of fees from the trust. Subsection (3) requires such an attorney to give notice to the trustee that the attorney has been retained by an interested party. Section 736.1007 discusses fees for the attorney for the trustee and continues existing law from Section 737.2041, providing for a presumed reasonable fee equal to 75% of the probate law fee in cases following the death of the settlor of a revocable trust.

Section 736.307 covers the period of limitations for actions for breach of trust and carries forward existing law from Section 737.307 regarding the six-month limitation for matters adequately disclosed in a trust accounting. A trustee may in certain cases be relieved of liability by virtue of an exculpatory clause contained in the trust (Section 736.1011) or by consent or release of a beneficiary (Section 736.1012). Section 736.1017 authorizes a trustee, in lieu of providing a copy of a trust to a non-beneficiary (such as a financial institution), to provide a certification of trust, containing the matters set forth in the statute (which specifically authorizes a trustee to omit disclosure of the dispositive provisions of the trust).

Part XI sets forth numerous default rules of construction, meaning that a settlor may adopt provisions which lead to a different result (except for those few provisions which the Code specifies cannot be overridden by a settlor). The default rules include such matters as: (1) adopted persons and persons born out of wedlock are deemed beneficiaries in certain class gifts; (2) gifts to multi-generational classes shall be per stirpes; (3) in the event of a divorce, a provision in a trust in favor of the former spouse becomes void; and (4) a comprehensive new statute for anti-lapse has been adopted (Section 736.1106).

Part XII covers charitable trusts and primarily restates existing law from Part V of Chapter 737.

Part XIII contains a couple of miscellaneous provisions, the most important of which relates to the effective date of the legislation (July 1, 2007), which was analyzed in my first article in this series.

Finally, the enabling legislation contains a few additional provisions relating to statutes other than those contained in Chapter 736. Of note to practitioners in the special needs trust area is the creation of a new Section 689.175, which abolishes the so-called “Doctorine of Worthier Title”. For several years the Social Security Administration’s lawyers have taken the position that under Florida law a special needs trust containing a dispositive provision after the death of the settlor to the settlor’s “heirs at law” or similar language renders the trust invalid for lack of a named remainder beneficiary with authority to enforce the terms of the trust. Their postition was that the Doctorine of Worthier Title caused the remainder to vest back in the settlor.

This new statute expressly rejects such an outcome. Another interesting new provision creates Section 731.103(4), relating to evidence as to death, which now applies to Chapter 736, as well as to the probate code. Existing Subsection (3) provides for a presumption of death for persons missing for 5 years. New Subsection (4) provides that (in the absence of a death certificate) death may also be established prior to a 5 year absence, by “ or circumstantial evidence...” Finally, an amendment to Section 744.441(11) empowers a guardianship judge to authorize a guardian to bring an action to invalidate a revocable trust executed by the Ward, if the court finds such an action to be in the Ward’s best interests. The probate section continues to meet on the second Wednesday of each month at 4:30 p.m. in the fourth floor meeting room in the civil courthouse. All interested practitioners are invited to attend.

Follow the yellow brick road..
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