Florida’s Trust Code consists overwhelmingly of default rules that settlors are free to opt out of or modify anytime. There are, however, a core set of rules listed in F.S. 736.0105 that are mandatory; you can’t draft around them. For example, under F.S. 736.0105(2)(e) your trust agreement can’t eliminate the “power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice.” This rule is taken verbatim from section 105(b)(13) of the Uniform Trust Code.
Especially as applied in Wallace, a 3d DCA opinion discussed below, F.S. 736.0105(2)(e) falls into the category of mandatory rules that paradoxically further settlor intent, even while simultaneously voiding a clause in the trust agreement. In other words, this kind of mandatory rule protects settlors (and their attorneys) from including provisions in their trust agreements that are ultimately self defeating. As in, they’d essentially allow trustees to loot their trusts.
Here’s how Prof. Langbien, one of the architects of the Uniform Trust Code, introduces the concept of “intent implementing mandatory rules” in his essay entitled Mandatory Rules in the Law of Trusts:
These are rules that channel and facilitate, rather than defeat, the settlor’s purpose. Included are the rule that prevents the settlor from dispensing with fiduciary obligations; the rule that prevents the settlor from dispensing with good faith in trust administration; the rule that limits the permitted scope of exculpation clauses; and the rule that requires that the existence and terms of the trust be disclosed to the beneficiary. Such terms, were they allowed, would authorize the trustee to loot the trust. The mandatory rules do not forbid the settlor from naming the trustee as a beneficiary, but they do force the settlor to articulate that intent with clarity. Accordingly, these rules are cautionary and protective in character, guarding the settlor (and the truly intended beneficiaries) against misunderstanding or imposition.
Wallace v. Comprehensive Personal Care Services, Inc., — So.3d —-, 2020 WL 2893658 (Fla. 3d DCA June 03, 2020)
This case involved a trust agreement containing a detailed mechanism for removing a family-member trustee who’s “disabled.” These clauses are common; they’re intended to provide a smooth, non-judicial mechanism for removing a parent as trustee if he or she becomes cognitively impaired due to old age or some other reason. On the other hand, if mom or dad is determined incapacitated in a guardianship proceeding, that works too.
Against this backdrop one of the trustee’s sons sued to have his father removed as trustee on the following grounds:
[Son] alleged [Father’s] mental condition rendered him unable to serve in that capacity, as evident from certain large and inappropriate gifts [Father] made from trust assets to new friends who were not beneficiaries of the trust.
Father moved to dismiss the claim, arguing that the terms of the trust agreement prohibited his removal unless he was first adjudicated as being incapacitated in a guardianship proceeding. And (to my surprise) the trial court agreed, dismissing the claim.
Can you limit a court’s ability to remove a trustee to the same standard as incapacity in guardianship proceedings? NO
The floor level of cognition required to protect against your personal rights being stripped away in a guardianship proceeding is, for all sorts of really good reasons, way lower than the floor level of competence the law requires of trustees.
So even assuming the trial court correctly interpreted the trust agreement in this case (I have my doubts), does a clause that shields a trustee from removal unless he’s first adjudicated incapacitated in a guardianship proceeding run afoul of our mandatory rules for judicial supervision of trustees? Yes, of course. As Prof. Langbien might put it, such “terms, were they allowed, would authorize [a clearly incapacitated trustee who still has the minimum level of cognition required to win in a guardianship proceeding] to loot the trust,” as alleged in this case.
Here’s how the 3d DCA summed up its reasoning for reversing the trial court’s dismissal order and allowing the claim for removal to proceed against the trustee — even if he hasn’t been adjudicated incapacitated in a guardianship proceeding.
[A] trust document … cannot eliminate or curtail the probate court’s power and responsibility under the Trust Code to remove a trustee when necessary in the interests of justice to protect the interests of the beneficiaries. §§ 736.0706, 736.1001, and 736.0201, Fla. Stats.; see McCormick v. Cox, 118 So. 3d 980, 988 (Fla. 3d DCA 2013) (“The court’s power to remove a trustee and to appoint a special trustee is well settled.”); Aiello v. Hyland, 793 So. 2d 1150, 1151 (Fla. 4th DCA 2001) (“Section 737.201(1)(a) [now § 736.0202, Fla. Stat.] unequivocally confers upon this Court the discretion and authority to remove a trustee where appropriate.”).
At oral argument, [Father] acknowledged this principle of law but argued it should not apply in the unique facts of this case. [Father] pointed out that he was the settlor who placed the assets in the trust; he is still the major beneficiary of the trust during his lifetime; and the attempt to remove him is based on his mental condition. In these circumstances, he argued, removing him as trustee is tantamount to declaring him a ward and depriving him of control over his own property and therefore should occur only if the standard for imposing a guardianship on him under section 744.331 of Florida Statutes could be met as he argues is the intent of the trustee removal provisions in the trust documents.
We do not agree. In the first place, [Father’s] argument improperly conflates the law of trusts with the law of guardianships. For good reason, the standard for removal of a trustee under section 736.0706 of the Trust Code is less exacting than the standard for imposing a guardianship under section 744.331 of the Guardianship Code. Persons may lack the accounting, business, legal, or mental acumen to serve as trustees regarding the property of others even when their condition would not justify the imposition of a guardianship over them regarding their own property.
Secondly, removing [Father] as trustee would not rise to the level of making [Father] a ward. The assets in the trust, even if once owned by [Father], stopped being [Father’s] property when they became the res of an irrevocable trust. Removing [Father] as trustee of the irrevocable trust, therefore, would not constitute an elimination of his control over his own property. Indeed, even if removed as trustee, [Father] would still have control over any property he personally owned, including any distributions made to him under the provisions of the trust.
So what’s the take away?
At its core this was a trust-construction dispute. When your trial judge rules against you in this kind of case, on appeal you of course need to make the standard arguments for why your reading of the document makes more sense. But you always want to have multiple arrows in your quiver. So when possible, you’ll want to craft an argument for why your reading of the document isn’t just reasonable, it’s also the only permissible option as a matter of law. This case is an excellent example of that tactic.
From a drafter’s perspective, my take away is philosophical. I don’t think the trust agreement in this case could have been written any better. That said, this case again demonstrates why none of us should ever be 100% certain a judge, who is of necessity a generalist, is going to interpret the words written by an estate-planning specialist in the way they were intended.
This isn’t a knock on the judiciary; it’s a reminder that we’re all human, and before we ask someone else (i.e., a judge) to decide our disputes for us, we need to interrogate the certainties we walk around with as specialists (read: arrogance). Which brings me to this wonderful bit of wisdom from a veteran litigator.
No lawyer should fashion himself a “superstar.” None can make all, or even most of, the calls correctly. Measured judgment is key, luck and bad fortune are always present, results are seldom perfect, and success can never be assured. … In the legal world, arrogance tends to be a self-correcting mistake, given how the law, not to mention the courts, has a perturbing tendency to bring us up short, to show us our misjudgments, even if they were only that the right cause would always prevail.
Robert E. Shapiro, The Tragedy of James Comey: A Lawyer’s Tale, Litigation, Volume 45, Number 1, Fall 2018.