You never plan for trustee misconduct; the person you have picked to act as trustee is, naturally, someone you trust. Sometimes, though, that person will have ulterior motives. The most common forms of misconduct include:
- Putting a trustee in control of assets that are to be used for the benefit of others inevitably presents the trustee with the opportunity and incentive to use those assets to his own benefit.
- Most trust beneficiaries have far less information about the trust assets than does the trustee, and usually have far less knowledge about investments, business, and the rules by which trusts operate.
- The trustee’s task in administering a trust is often a very complicated one, requiring a range of abilities and painstaking recordkeeping. A disorganized trustee could misplace important documents.
The trustee is in a superior position to the beneficiaries, and the law treats the trustee as a fiduciary. A fiduciary is someone with “discretionary power” over the interests of other people; this means there is incentive and opportunity to abuse the trustee position.
Trustee Duties Imposed by Florida Law
In general, the trustee is responsible for three types of activity:
- Actions that can be considered administrative, such as detailed recordkeeping, filing the necessary tax forms, keeping beneficiaries informed of relevant information on the trust and its performance.
- Management of the trust assets, including properly investing them in accordance with the terms of the trust.
- Making distributions to beneficiaries that the trust terms require or allow.
In carrying out these duties, trustees are held to a higher standard of conduct than people who conduct “arms length” business transactions. Their obligation is to serve the interests of the beneficiaries above their own interests and, when there are multiple beneficiaries, to be impartial rather than favoring one over the other.
The Florida statutes impose specific duties on trustees, including:
- Taking reasonable steps to protect trust assets.
- Accounting for the financial activity of the trust, including gains, losses and expenses; including a full accounting at least once a year.
- If necessary, defending the trust by means of appropriate enforcement of claims by the trust and defense of claims against the trust.
Duty to Invest Trust Assets
Florida law specifically calls on trustees to manage the trust as a “prudent person” would, taking account of all aspects of the trust, while exercising “reasonable” caution, skill and care. In cases where the trustee possesses special expertise or skills, the trustee must employ those skills in service of the trust.
What Constitutes Misconduct
While a trustees misconduct is limited only by his or her imagination some of the more common transgressions include:
- Outright theft of trust assets.
- Mingling trust assets with personal assets.
- Failure to make distributions as required by the terms of the trust.
- Putting personal interest ahead of beneficiaries’ interests by investing trust assets in ways that personally benefit trustee (this can vary from selling trust assets to himself, to making a specific investment in return for a kickback or future trust business).
- Negligence in investing assets.
- Failure to discover misconduct on part of co-trustee.
Florida law offers a broad range of remedies for trustee misconduct. Among the most common are:
- Orders compelling the trustee to perform his duty or prohibiting the trustee from performing an act that would be a breach of trust.
- Voiding the trustee’s actions in breach of the trust.
- Removal or suspension of the trustee.
- Reduction of the trustee’s compensation.
- Payment of monetary compensation to the trust.
- Restore property to the trust.
In addition to these specific remedies, the court has the discretion to provide any other relief that is appropriate under the circumstances.
Trustee’s Liability for Damages
By Florida statute, any trustee who breaches the trust is liable for damages consisting of the larger of the following:
- The profit to the trustee.
- The amount needed to restore both the trust and any distributions that have been made from it to the value while would exist but for the breach.
The amount needed to restore the value of the trust and/or distributions is often a complicated calculation.
Trustee misconduct cases in which the trustee denies any misconduct are frequently complicated. They can also drag on and on, eating up assets, time and energy. If you have an interest in a trust and are considering charging the trustee with misconduct, we can help you determine:
- Whether to bring a tort action for breach of fiduciary duty.
- Determine whether there has been misconduct.
- Determining what remedy to pursue.
Because the trustee usually has very broad discretion over the assets, proving a breach of trust requires establishing that the trustee acted in a way that a “prudent investor” would not have. This can often require considerable evidence and testimony including from experts and financial analysis.
Call the law firm of Todd A. Zuckerbrod, P.A. for a free consultation. The firm has a solid history of handling trustee misconduct cases effectively and efficiently.