Probate Section Report
by
Larry E. Ciesla

Featuring: What’s Significant in Florida’s New Trust Code

A recent probate section meeting featured a presentation by Debi Pais and Greg McGann, local licensed clinical social workers who are two of the principals of Omega Counseling and Care Management Services. They offer a wide variety of consulting and other services in the world of elder care, including mental status assessments; counseling for elders, their family members and caregivers; preparation of care plans; ongoing care management; referrals to community resources; assistance with medical appointments and transportation; assistance with applying for government benefits; relocation planning; and admission and discharge planning to and from hospitals, ALF’s and nursing homes. If I understand things correctly, their intent is to provide “one-stop shopping” for all of your elder care needs. If they are unable to help your specific issue, they will refer you to someone who can. They can be reached at 375-8301 or on the web at www.omegacounselors.com.

Continuing with our review of the new trust law, we will next look at what is significant: statutory provisions not previously existant in Florida Law, including certain significant restatements of existing statutory and common law. Section 736.0103, Florida Statutes (definitions), presents us with two classes of beneficiaries. A “Beneficiary” is anyone having either a present or a future interest in a trust, whether vested or contingent. A “Qualified Beneficiary” is a subset of “Beneficiary” and includes only those who are presently living and who are either (1) currently receiving distributions from the trust; or (2) are among those to whom the trustee could, in its discretion, currently make a distribution; or (3) would fall within (1) or (2) above if the beneficiaries under (1) and (2) above died, or the trust terminated, as of the date the determination of “Qualified Beneficiary” is made. The two classes of beneficiaries receive different treatment under various provisions of the trust code, for example, in the area of the trustee’s duty to render accountings. Section 736.0111 authorizes the trustee and beneficiaries, within certain limits, to enter into a nonjudicial settlement agreement as to “...any matter involving a trust.”

The matter must be one which, if presented to a court, could properly be approved. This statute may not be used to reach a result which is not authorized under the trust code. The statute provides several examples of matters which could properly be the subject of a nonjudicial settlement agreement, including (1) construction of a trust provision (2) approval of accounts (3) resignation of a trustee (4) appointment of a trustee (5) determination of trustee’s compensation and (6) liability of a trustee for a particular action (or failure to act). The statute ends by conferring upon “interested persons” the right to request a court to rule on the propriety of any proposed nonjudicial settlement. We must refer back to the very first provision of this statute to learn that “interested person” means anyone whose interest would be affected by a proposed settlement.

Part III of the code contains a variety of statutes dealing with the concept of Representation (which is also recognized in Section 731.303 of the Probate Code). Section 736.0306 sets forth a new provision whereby a settlor may, within limits, designate a person to be the representative of (and to bind) a beneficiary to receive notices and accountings. Certain limitations apply, including (1) a trustee may not serve as a representative of a beneficiary, and (2) a representative may be precluded due to a conflict of interest. It is thought that this provision could be used by a settlor to prevent certain beneficiaries from gaining access to information, such as that contained in accountings, which the settlor does not wish them to have. For example, if there are two siblings, (i.e., the “son” and the “daughter”) who fall within the definition of “qualified beneficiary” and are therefore entitled to receive copies of annual accountings, and the settlor does not wish the “son” to have access to the accountings, the settlor could include a representation provision in the trust, whereby the “daughter” acts as the representative for the “son”.

Part IV of the code deals with trust creation, validity, modification and termination and primarily reflects existing statutory and common law. Under existing law, courts have the authority to modify a trust to conform to the settlor’s intent or for the best interest of the beneficiaries. A settlor may prohibit modification by adopting one of two Rules against Perpetuities (lives in being plus 21 years or 90 years) and expressly providing that modification is prohibited. Nonjudicial modification of irrevocable trusts by agreement between the trustee and the beneficiaries, limited to trusts created after 2000, and for which the settlor is deceased, continues to be recognized under the new law. Section 736.0414 contains a new provision authorizing a trustee, acting without court involvement, to terminate a trust containing less than $50,000.00. Prior notice to qualified beneficiaries is required. A qualified beneficiary may object and ask a court to not allow the proposed termination. If the trust is over $50,000.00 and considered “uneconomic” by the trustee, court approval for termination is required.

Part V deals primarily with spendthrift clauses and creditor-beneficiary rights. It may be helpful to divide trusts into two categories: self-settled and third-party. For a revocable, self-settled trust (including the common revocable living trust), while the settlor is alive, there is no protection from creditors of the settlor (Section 736.0505(1)(a)). If a self-settled trust is irrevocable, a creditor of the settlor may reach the maximum amount that the trustee is authorized to distribute to the settlor (Section 736.0505(1)(b)). The existence of a spendthrift clause in the foregoing trusts has no legal effect. It may be helpful to further divide third-party trusts into two categories: purely discretionary and all others. A creditor of a beneficiary of a purely discretionary trust has no right to reach any trust assets (Section 736.0504). The existence of a spendthrift clause in such a trust has no legal effect. An example of this type of trust is a properly drafted special needs trust created by a third party for a disabled beneficiary.

In cases involving a non-discretionary third-party trust providing for specified distributions to a beneficiary and not containing a spendthrift clause, a creditor of the beneficiary will ordinarily be able to reach both present and future distributions (Section 736.0501). If a non-discretionary third-party trust contains a spendthrift clause, the rules are set forth in Sections 736.0502 and 736.0503. For trusts executed after July 1, 2007, to be valid, a spendthrift clause must prohibit both voluntary and involuntary transfers of a beneficiary’s interest. A valid spendthrift provision will protect the beneficiary from creditors except as to judgments or court orders for support or maintenance obtained by a child, spouse or former spouse of a beneficiary, provided there is an initial showing that “...traditional methods of enforcing the claim are insufficient.”

A new further exception to the protection afforded by a spendthrift clause has been created for the benefit of a judgment creditor (i.e. lawyer) who has provided services for the protection of a beneficiary’s interest in the trust. Note that all of the foregoing assume that a distribution has not yet been made to a beneficiary. Once the funds have been received by a beneficiary, the rights of a creditor of a beneficiary are governed by the traditional law of debtor-creditor. Next month we will look at the significant provisions of the remaining parts of the new trust law.

 
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