This case was 12 years in the making. Starting with the settlor’s death in 2001, boiling over into a lawsuit in 2006 after the trustee paid himself a $1.2 million fee (which wasn’t disclosed to the trust’s beneficiaries until after the fact), finally getting to trial 6 years later in 2012, and concluding a year after that with the appellate decision linked-to above (not as bad as Jarndyce v Jarndyce, but wow?! 12 years!!). While much of the 3d DCA’s opinion focuses on the beneficiaries’ trust-accounting objections, at its heart this case is all about disputed trustee fees.
What started out as a $1.2 million fee dispute snowballed into an across-the-board indictment of just about everything the trustee ever did, resulting in a whopping $5.3+ million adverse judgment against him. Any time a trustee is at odds with the beneficiaries of his trust, fees are going to be a flashpoint. There are lots of ways to manage that problem, but they all revolve around getting prior consent from a court and/or the trust’s beneficiaries. The trustee at the center of this case did neither, opting instead to pay himself first and ask questions later. Here’s how the 3d DCA described how the payment was handled:
When the [$12 million] sale of the [trust’s] property closed in August 2005, McCormick instructed the closing agent to make separate distributions to the trusts totaling over $1,548,000 . . . McCormick’s testimony and notes established that these funds were diverted from the proceeds without clearance from the beneficiaries, much less any court order, primarily to fund “trustee’s fees” totaling $1,217,528 in four payments from September 2005 through December 2005. When professionals retained by the beneficiaries realized that the net proceeds were substantially less than anticipated, they began a journey of discovery that culminated in learning of the “trustee’s fees” and commencing the circuit court adversary proceeding.
In retrospect, the trustee’s approach was a really bad idea, as the 3d DCA makes clear in this scathing assessment of the trustee’s conduct when his fees were first questioned:
When the beneficiaries learned of the extraordinary and unilateral trustee’s fees paid by McCormick to himself from the sale of the Lynnfield property in 2005, they and their professionals immediately demanded information and the legal basis for the payments. Remarkably, McCormick did not immediately restore the payments (or any part of them) to the trusts pending a resolution of the matter or the submission of the claim for trustee’s fees to the court. Nor did McCormick place the funds (or any part of them) in a separate account or segregate them until the court considered the matter. McCormick simply retained the funds and waited for the beneficiaries to come after him in their lawsuit. The trial court had the power to review the evidence regarding the trustee’s administration of the trusts and to determine an appropriate trustee’s fee, including no fee at all. § 736.1001(2)(h), Fla. Stat. (2013) (authorizing the court to “reduce or deny compensation to the trustee” to remedy a breach of trust); Ortmann v. Bell, 100 So.3d 38, 45 (Fla. 2d DCA 2011).
By the way, this case is far from over. Now comes the collection phase. A $5.3+ million judgment may sound like a lot, but it’s worthless if you can’t collect. Something to keep in mind before embarking on years of expensive litigation, especially if your litigation target isn’t bonded (as in this case).
On the present record, and in the absence of a bond, the beneficiaries must pursue collection remedies (of as-yet unknown efficacy) against the defendants/appellants, with no apparent recourse to a surety.
If you’re a trustee, when in doubt, get a court order in advance. This approach applies to any trustee decision, but it’s especially applicable when it comes to your fees. You may not like what the judge tells you, but at least you know in advance what the deal is. At that point you have a choice: take the deal or walk. In other words, accept the court’s ruling as to what a reasonable fee would be under F.S. 736.0708, or bow out of the engagement. What you don’t want to do is roll the dice and hope a court will see it your way years later when every decision you ever made as trustee is picked apart in hindsight.