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So You Have Been Asked to Serve as a Trustee of a Trust? What You Should Know about Serving

Mark A. Schwartz and Bonnie Lee Polk

The trust is a popular tool in today’s world of estate planning.  A trust is a fiduciary relationship with respect to property, and it involves an agreement (normally in writing) under which the trustee holds legal title to property for the benefit of the trust beneficiaries.  In Florida, this relationship is managed the trust agreement as well as Florida Statutes and Florida case law.  In certain instances, the trustee may also be subject to obligations under the Florida Administrative Code and federal law.  It follows, then, that a trustee who administers a trust in Florida must have a working knowledge of the law regarding trust administration in order to prevent exposure to personal liability and potential litigation.  This article explains basic duties and powers of trustee under Florida law and what action a trustee should take when faced with a dispute with regard to the trust.

WHAT ARE THE DUTIES OF A TRUSTEE?
The assets held by the trust do not belong to the trustee; they are being held “in trust” for the beneficiaries.  Consequently, in order to protect those assets, there are considerable duties and responsibilities placed upon the trustee which are established by the trust agreement, as well as Florida and federal law.   Certain of these duties and responsibilities are as follows:

Duty to be Fair and Impartial - A trustee must act in good faith, perform selflessly, and not abuse or take advantage of their position or the trust that has been placed in them.  A trustee must exercise the highest degree of honesty and fairness in all dealings with the beneficiaries to whom is owed a fiduciary duty.  In addition, a trustee has a duty of impartiality; the trustee must not show favoritism towards one beneficiary—he or she must treat the beneficiaries equally.

Duty of Loyalty and to Avoid Conflict - A trustee has a duty of loyalty to the beneficiaries; no self-dealing is permitted.  If a trustee places himself or herself in a position contrary to the beneficiaries, the trustee will face removal.

Duty to Account and Keep Beneficiaries Informed – The beneficiaries of a trust are entitled to know what assets are in the trust and to know how the trust is being administered.  Hence, the trustee has a duty to render accountings, and the beneficiaries may request the right to examine the records and books relating to receipts and disbursements made during the administration of a trust.

Duty to Make the Trust Productive -  Another major responsibility the trustee has is to make the trust property productive – cause it to produce income.  And when investing, the trustee must use great care, skill, and caution.

Again, a trustee must consult the trust agreement and the law to understand the duties and responsibilities bestowed upon him/her. This will help ensure proper administration of the trust in the best interest of the beneficiaries.

WHAT POWERS DOES A TRUSTEE HAVE?
Just as with the duties of a trustee, the trust agreement, as well as Florida and federal law, establish the powers of the trustee.  Without certain powers, it would be impossible for a trustee to carry out the fiduciary responsibilities required of the trustee under the terms of the trust.  Below are a few of the most common powers held by a trustee.

Power to Buy or Sell - Generally, a trustee can buy or sell items in the administration of the trust.  They may also “partition” or break the asset into smaller pieces and even abandon property when it’s in the best interest of a beneficiary.

Power to Borrow - The trustee can borrow money to be repaid from trust assets.  

Power to Hire Professionals to Assist with Administration including Attorneys or Other Agents - A trustee has the power to employ an attorney, an accountant or other financial advisor, or any other agent to assist with proper administration of the trust.  

Power to Distribute - A trustee has the power to distribute assets to beneficiaries. 

Other Powers under Florida Law - A trustee has the power and a duty to defend and uphold the trust.  Because Florida confers additional powers under the Trust Code, a settlor may limit or exclude some of the powers that are traditionally given to a trustee in the trust agreement.

DOES A TRUSTEE HAVE PERSONAL RISK?
If the trustee fails to properly administer the trust, he/she can be liable to the beneficiaries for his/her mistakes.  Beneficiaries may seek to remove the trustee because of an act or the failure to act that causes a waste or mismanagement of the trust's assets. Another remedy that beneficiaries of a trust have is called a “surcharge action” where they seek to make the trustee pay monetarily for his/her wrongdoing.

WHAT ACTION SHOULD A TRUSTEE TAKE WHEN FACED WITH A DISPUTE UNDER THE TRUST?
A dispute with regard to a trust could arise with a beneficiary or with a third party.  In the event someone has threatened or has filed a lawsuit against you as trustee, it is important to act quickly.  You should contact a lawyer who handles trust litigation.  He or she may be able to assist you in resolving the dispute without litigation.  If the dispute results in a lawsuit being filed, he or she will serve as your counselor and advocate.  If you have been served with a summons and complaint, there will be a deadline to respond as set forth in the summons.

The trust litigator will be able to evaluate the facts and advise you with respect to the litigation process as well as the probabilities of success or failure in the case.  He or she will be able to recommend an appropriate strategy and make tactical decisions to implement the strategy and advise if the lawsuit might present a risk of personal exposure to the trustee.  

For further information about serving as a trustee, or if you have questions about a dispute arising out of a Trust, please contact Mark Schwartz at (941) 329-6621 or  mschwartz@williamsparker.com, or Bonnie Polk at (941) 552-5548 or bpolk@williamsparker.com.
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