Tuesday, December 16, 2014

PROTECTOR POWER TO AMEND TRUST UPHELD, BUT LITIGANTS ALSO RAISE AN INTERESTING ACCOUNTING ISSUE [FLORIDA]–PART II

Earlier this week I wrote about a recent Florida case that upheld the ability of a trust “protector” to amend the provisions of a trust. You can read that posting here.

In that posting, I alluded to an interesting trust accounting issue. In the case, the purpose of the amendment made by the protector was to cut off the rights of the remaindermen (the decedent’s children) under the trust to receive accountings and object to the operation of the trust. The amendment was made to clarify that under the terms of the Family Trust which was being held for the decedent’s spouse, that when the spouse died the trust assets would not continue in trust for the children, but instead would pass to a new and separate trust for the children. It is the position of the spouse that since the children are not beneficiaries of the Family Trust being held for her, the trustee need not account to them under Florida law and they have no ability to object to the administration of the Family Trust. Their interests are only in a new trust to be created later.

According to an affidavit of the protector, who was also the decedent’s attorney, he intentionally set up the trust documents in this manner so that the decedent’s children could not challenge how the assets of the Family Trust were applied for his spouse.

Under Florida law, accountings must be distributed to “qualified beneficiaries.” Florida Statutes Section 736.0103(14) defines a “qualified beneficiary.” An element of the definition is that the subject person is a “beneficiary.” Section 736.0103(4) provides that to be a “beneficiary”, a person must have “a present or a future beneficial interest in a trust, vested or contingent, or holds a power of appointment over trust property in a capacity other than that of trustee.” (emphasis added). It is the position of the spouse that the language “in a trust” means that the interested person must have a beneficial interest in the subject Family Trust – an interest in a trust that receives the assets of the Family Trust does not make one a beneficiary of the Family Trust. Now that the appellate court has upheld the protector’s amendment to the Family Trust to clarify that it terminates at the death of the spouse, presumably the trial court will now rule on this question.

If the spouse is correct, this would create a major loophole in the statutory obligation to account. All that would be necessary to defeat the interests of remaindermen would be to draft in a manner that they receive their remainder interests in a new trust instead of the trust that held the assets before their remainder interest is funded. This would disturb a key policy of accountings which is that the remaindermen are the policemen of the trust since it is in their interest to make sure that the trustee lives up to its obligations – if they are blocked from receiving accountings or objecting to trust administration, then there will be no checks on the trustee other than the current beneficiary (who may in fact be the trustee).

I would expect that the spouse will not prevail in her argument. However, there is language in the statute to support a contrary ruling, so we will see what develops!

Minassian v. Rachins and Minassian, 4th DCA, Case No. 4D13-2241, December 3, 2014

Sunday, December 14, 2014

PROTECTOR POWER TO AMEND TRUST UPHELD, BUT LITIGANTS ALSO RAISE AN INTERESTING ACCOUNTING ISSUE [FLORIDA]–PART I

A recent Florida appellate court decision upholds the ability of a trust “protector” to amend the provisions of a trust.

Florida Statutes Section 736.0808(e) provides that “[t]he terms of a trust may confer on a trustee or other person a power to direct the modification or termination of the trust.” In the trust at issue, the trust instrument authorized a third party to modify or amend the trust provisions to correct ambiguities in the trust or correct a drafting error that defeats the settlor’s intent. During litigation involving the rights of children to challenge the administration of a trust held for the settlor’s spouse, the protector modified the trust language in an attempt to restrict the children’s right to challenge. The trial court disallowed the amendment. The appellate court found ambiguity in the trust document that was eligible for modification by the protector, and reversed the trial court and allowed the amendment to stand.

The children argued that the amendment power violated common law as an unauthorized delegation by the trustee of discretionary powers to another. The appellate court rejected this because it was not the trustee that delegated a duty here – it was the settlor. Further, Fla.Stats. 736.0106 allows common law to be overridden by the statutory provisions of the trust code.

The children also argued that Sections 736,0410-.0415 and 736.0412 are the sole means of modifying a trust under the Florida Trust Code, and that the terms of the trust are not permitted to override this limit, pursuant to Section 736.0105(2)(k). The appellate court did not agree to this restrictive reading, since otherwise Section 736.0808(3) would have no effect.

I have updated our Irrevocable Trust Amendment Mechanisms diagram for this case. You can download the new version here. The first page is a shortened version – the second page has the detail which you will need to zoom in on to read.

The more interesting question to me is what the wife and the protector were trying to accomplish by the amendment vis-à-vis the obligation to account to the children. This is addressed in Part II of this posting, to follow.

Minassian v. Rachins and Minassian, 4th DCA, Case No. 4D13-2241, December 3, 2014

Wednesday, December 10, 2014

EMPLOYER CASH PAYMENTS TO REIMBURSE EMPLOYEES FOR HEALTH INSURANCE COSTS–NO!

Many employers offer or provide cash to employees to reimburse them for the cost of purchasing an individual health insurance policy. Others offer employees with high claims risk a choice between enrolling in the company’s standard group health plan or choice. Some companies purchase a product that allow employers to cancel their group policies, setup a reimbursement plan that works with brokers or agents to help employees select individual policies, and allow eligible employees to access premium tax credits.

The Department of Labor has announced that any of the above will be a violation of the Affordable Care Act – violating companies can be subject to penalties as high as $100 per employee per day. The bureaucratization and regulation of health care marches on.

If you think this may apply to you or your clients, see the FAQ below for more details.

FAQs about Affordable Care Act Implementation (Part XXII), November 6, 2014