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
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