The linked-to opinion should be read by every trust beneficiary contemplating a lawsuit against his or her trustee. Not only is the beneficiary usually at a disadvantage in terms of litigation financing (the trustee can use trust assets to pay litigation costs, the beneficiary has to pay these costs out of pocket), courts will often give an enormous amount of deference to trustees, forgiving them small "technical" mistakes and erring on their side even when the trustee's actions are questionable or down right vindictive.
This is the third!!! time the beneficiary in this case has sued her trustee, lost at trial, and lost again on appeal before the 4th DCA. Oh, and in the last two appeals the beneficiary tried to get the Florida Supreme Court to hear the case and was denied.
The first time around the 4th DCA agreed with the trial court's ruling that although certain actions taken by the trustee were "questionable and vindictive," they didn't rise to the level warranting removal as trustee. Parker v. Shullman, 843 So.2d 960, 961 (Fla. 4th DCA), rev. denied, 857 So.2d 197 (Fla.2003). The second time around the beneficiary sued her trustee based on objections to the compensation he was paying himself as CEO of the closely held business he was also administering as trustee of the trust. The trial court's dismissal with prejudice of that lawsuit was upheld on appeal because "the trustee's simultaneous participation in the company and management of the trusts was authorized by the text of the trusts." Parker v. Shullman, 906 So.2d 1236, 1237 (Fla. 4th DCA), rev. denied, 915 So.2d 1196 (Fla.2005).
Strike three: beneficiary 0 for 3 in litigation v. trustee:
The beneficiary fared no better this time around - her third trial - than she's done in the past. This time the issues at trial were the sorts of things that often bother beneficiaries. Again, this case is a good example of why patience may be wiser (and certainly cheaper) than suing.
1. First complaint: trustee is taking too long to fund my trust:
This is the sort of complaint trusts and estates lawyers hear all the time. Even if the trustee is dragging his feet, if there's even a whiff of legitimacy to his delay, the court will likely side with the trustee. That's what the court did in this case, and here's why the 4th DCA affirmed that ruling:
Section [736.05053] provides that the interests of all beneficiaries of a revocable trust are subject to the trustee's duty to pay the expenses of the administration and obligations of the grantor's estate. This court was presented with a similar situation in First Union National Bank v. Jones, 768 So.2d 1213, 1215 (Fla. 4th DCA 2000), in which a trustee argued the trial court had erred in ordering disbursement of the entire corpus of a trust prior to the trust having the opportunity to seek its attorney's fees. This court reversed and remanded:2. Second complaint: it's the trustee's fault the estate's stock portfolio lost money
Although a trust instrument directs termination of the trust and the distribution of the principal to the beneficiaries upon the settlor's death, the trustee cannot make complete distribution until provision has been made for all the expenses, claims and taxes the trust may be obligated to pay, and certainly not before these amounts have been fully ascertained. Moreover, when the trust is the beneficiary of the grantor's probate estate and is charged with the duty to pay the expenses, claims, and taxes imposed on the probate estate, the trustee cannot make complete distribution of the trust until the probate proceeding has been substantially concluded, which was not the case here.
First Union, 768 So.2d at 1215; see also Sheaffer v. Trask, 813 So.2d 1051, 1052 (Fla. 4th DCA 2002)(citing First Union in reversing trial court's grant of petition to distribute trust assets before authorizing trustee to pay trust debts and expenses); Merrill Lynch Trust Co. v. Alzheimer's Lifeliners Ass'n, 832 So.2d 948 (Fla. 2d DCA 2002)(holding trial court abused its discretion in finding trustee in civil contempt for failing to distribute trust where it would not have been prudent to do so without an accounting).
Under Florida's Prudent Investor Rule, F.S. 518.11, whether a trustee has done his job right in managing the trust's stock portfolio is determined by looking at his investment "process," not his investment results. In other words, if the trustee takes all the steps a reasonable investor would take to properly manage his investment portfolio, it doesn't matter if the stocks crater in value, he's done his job. As the 4th DCA put it, "section 518.11 provides that the fiduciary's decisions are to be judged under the facts and circumstances at the time of the decision or action, and that the test is one of conduct rather than resulting performance." Based on the following evidence, the beneficiary lost on this point as well (note the emphasis on process, not performance):
The testimony and evidence at trial supports the trial court's finding that Shullman's conduct with respect to the trust's complete portfolio of assets satisfied the Prudent Investor Rule and that appellant's objections were heavily based on hindsight rather than in the context of the existing facts and circumstances at the time. The trial court found that Shullman relied upon the advice of Comerica in managing the securities. Shullman testified at length about the steps he took following Barbara's death to interview and eventually retain an investment adviser and schedule meetings with them to advise them of the trust requirements, and that he followed their advice. The trial court's decision is therefore supported by competent substantial evidence in the record that Shullman hired Comerica to manage the securities and reasonably relied on them in his capacity as trustee.
3. Third complaint: the trustee improperly paid his legal fees without getting the court's prior approval:
This loss must have really hurt. On this point, the beneficiary was clearly in the right - and yet she lost here too. Under F.S. 736.0802(10), a trustee who's being sued for breach of trust may be personally liable for damages, thus it's a conflict of interest to use trust funds to pay for the trustee's personal legal defense. The statute deals with this conflict of interest by requiring that trustees in this situation obtain court approval prior to using trust funds to pay for their legal defense. The 4th DCA upheld this interpretation of the statute just last year in J.P. Morgan Trust Co., N.A. v. Siegel, --- So.2d ----, 2007 WL 2710957 (Fla. 4th DCA Sep 19, 2007).
On this issue the 4th DCA agreed with the beneficiary and reversed the trial court's ruling absolving the trustee from the obligation of obtaining court approval prior to paying for his personal legal defense with trust assets. But having given with one hand, the 4th DCA took with the other by simply giving the trustee a free "do over":
[I]n accordance with Siegel, we hold that the action objecting to the compensation Shullman paid himself as CEO of Sportswear put Shullman in a position of conflict under the previous version of section 737.403(2), Florida Statutes, in effect at the time. We therefore reverse on this issue without prejudice to Shullman's ability to seek court approval for the fees incurred defending that action.