Florida Probate Litigation, Will Contest Lawyer & Attorney : Juan C. Antúnez : Serving Miami, Jacksonville, Tampa Saint Petersburg, Orlando, Fort Lauderdale

There is often an inherent conflict of interest between the current and remainder beneficiaries of a trust. There are two ways to address that issue: provide for contemporaneous trust distributions to family members or explicitly override the trustee’s duty of impartiality between current and remainder beneficiaries under F.S. 736.0803. For example, if the trust is created for the life-time support of a client’s child or surviving spouse but the client also wants to allow trust assets to be distributed to each child’s own family, the following clause should be considered:

Distributions to Family. The Trustee shall pay or apply such sums of income or principal from each beneficiary’s separate trust as in the Trustee’s discretion are necessary or advisable for that beneficiary’s health, education, support, and maintenance, or as any Corporate Trustee in its discretion determines to be in that beneficiary’s best interests. After being reasonably assured that the beneficiary has sufficient means for his or her continued support, the Trustee in its discretion also may pay any sums of income or principal that it deems necessary or advisable for the health, education, support, and maintenance of the beneficiary’s descendants, or as any Independent Trustee in its discretion determines to be in their best interests, either individually or collectively.

With respect to the second approach, the following is an example of language explicitly overriding the trustee’s duty of impartiality between current and remainder beneficiaries:

Duty of Impartiality. In exercising its discretion to make distributions to or for the beneficiary of this trust, the trustee shall consider the needs of the remainder beneficiaries to be subordinate to the interests of the current beneficiaries. No good faith decision to invade principal for the benefit of a current beneficiary shall be subject to challenge by any remainder beneficiary.

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If the client’s wealth is the product of a family-run business or a single concentrated stock investment, he (and the family) may be reluctant to divest themselves of this asset upon the client’s death. This is an understandable sentiment; unfortunately it runs head on into the general fiduciary duty to “diversify.” The duty to diversify may be waived by the client if he explicitly expresses this intention in the testamentary instrument. The following two sample clauses address this issue:

Original Assets. Except as otherwise provided to the contrary, to retain the original assets it receives for as long as it deems best, and to dispose of those assets when it deems advisable, including any interests in XYZ FAMILY BUSINESS or other affiliated or successor entities, as more specifically set out in Article ___, even though such assets, because of their character or lack of diversification, would otherwise be considered improper investments for the Trustee.

Retention of Stock. I authorize the Trustee to retain the assets that it receives, including shares of stock or other interests in XYZ FAMILY BUSINESS, or its successors in interest, or any other company or entity carrying on or directly or indirectly controlling the whole or any part of its present business (collectively referred to as “the company”), for as long as the Trustee deems best, and to dispose of those assets when it deems advisable. I intentionally excuse the Trustee from the duty to diversify investments by the sale or other disposition of interests in the company that ordinarily would apply under the prudent investor rule, and I direct that the Trustee not be held liable for any loss or risk (even so-called “uncompensated risk”) incurred as a result of this failure to diversify. Nothing in this paragraph will be interpreted in any manner to limit the Trustee’s authority to sell some or all of the interests in the company.

Planners should note that concentrated-stock positions can lead to huge litigation exposure for fiduciaries – especially deep-pocket corporate trustees. In In re Chase Manhattan Bank, 809 N.Y.S.2d 360 (N.Y.A.D. 4 Dept. Feb 03, 2006), a recent high profile case out of New York, the existence of the type of waiver-of-duty-to-diversify clause provided above enabled Chase Manhattan Bank to completely reverse on appeal a $24+ million judgment entered against it at trial. The New York appellate court focused on the following provisions:

The trust was funded with a concentration of Kodak stock. Decedent’s will provided that “[i]t is my desire and hope that said stock will be held by my said Executors and by my said Trustee to be distributed to the ultimate beneficiaries under this Will, and neither my Executors nor my said Trustee shall dispose of such stock for the purpose of diversification of investment and neither they [n]or it shall be held liable for any diminution in the value of such stock.” Decedent’s will further provided that “[t]he foregoing .  .  .  shall not prevent my said Executors or my said Trustee from disposing of all or part of the stock of [Kodak] in case there shall be some compelling reason other than diversification of investment for doing so.”

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