RIGHT TO TRUST INFORMATION

By James W. Mallonee

Clients often come to the office and ask about having a trust drawn up for them. My reply is generally why do you think you need a trust? The prominent answer is to avoid probate, but in reality, the responsive explanation is you won’t. There is another thought that should be taken into consideration about avoiding a trust and that is the information that the beneficiaries will be entitled to seeing that you may not want them to have access too.

Florida’s trust code gives to the qualified beneficiaries (those persons who are next in line to receive trust assets) the right to information concerning the trust the moment it becomes irrevocable. Irrevocability is generally caused by the death of the grantor or resignation of such person who is also serving as the trust’s Trustee.

The sharing of trust asset information with the qualified beneficiaries is not required provided the original grantor remains serving as Trustee. So what information are the qualified beneficiaries entitled to review and see?

Upon the death of the Grantor or resignation of the Grantor serving as Trustee, the qualified beneficiaries are entitled to the following by statute:

1. Notice of the successor Trustee;
2. Notice of the creation of an irrevocable trust (caused by the death of a Grantor or resignation of the Trustee), and a right to copies of the trust;
3. Receipt of an immediate inventory and accounting on at least an annual basis;

Although the above may not seem difficult to produce, the problem this author has incurred is the appointed successor Trustee is unaware of their responsibility to provide the information. This lack of awareness is either caused by the successor Trustee taking over the responsibility of the Trust without being educated on what is expected of them. This eventually leads to litigation or anger among the qualified beneficiaries who believe they may be getting less of a fair deal. Consider the following real-life example:

Mom and Dad prepare a “joint trust” where both are the Grantors and Trustees. Mom dies and Dad is left as the remaining Trustee. The trust terms contain a paragraph that says once one of the Grantor’s should die, the Trust becomes irrevocable. Mom had the paragraph added to the trust to avoid Dad from taking up with another female and sharing the trust assets with her while the natural children of Mom and Dad might possibly lose estate assets to the new female partner.

Because the trust is irrevocable, Dad has to provide trust information to the qualified beneficiaries (children) and start providing them with an accounting. In addition, should Dad elect to use the trust assets for any major purchase (e.g. real estate, vehicles, gifts for the female partner or their expenses) he has to expose who the purchase was for and why. The qualified beneficiaries have a right to question the validity of the purchase or investment based on the standards provided in the Trust (health, education, maintenance and support). If the purchase or investment is unreasonable, the Trustee (the original Grantor with Mom) could be sanctioned for such purchase and investment.

In the authors situation, Dad (who is quite elderly) did take up with a partner. At Mom’s death, Dad did not seek the advice of an attorney, but simply kept his everyday life style like nothing had changed. The children immediately took up adverse positions because of the fear that the partner would reduce their inheritance to nothing. Naturally this boiled over to litigation which continues to this day after 3 years and no end in sight until Dad passes. Could this have been avoided? Possibly.

One way of avoiding this problem is to have separate Mom and Dad trusts as opposed to the Joint Trust. At Mom’s death, all of the assets of her estate would pass to Dad’s trust. Because Dad remains alive and is the Trustee, he is not required to account to the qualified beneficiaries. He could take up with a partner and continue to enjoy life without the fear of being hauled into court every time one of the children thinks they might lose out on their inheritance. Imagine the level of distrust and animosity now taking place within the family.

What solutions to this mess could have been instituted by the children? As a group, they could have requested Dad to consider granting one of the children to be a co-trustee or possibly a trust protector following Mom’s death. As co-trustee, they would have knowledge of how the estate funds are being used and accounted for. As a trust protector, they would have the ability to view the activities of how Dad was utilizing the remaining trust funds and if absurd activities were occurring to stop them. Another solution might have been when the trusts were being created to have included in Mom’s trust a separate trust paying Dad the income for his use and at his eventual death, the principal being paid out to the children. Either one of the suggestions would have worked and litigation could have been avoided.

If you are concerned about how your assets might be transferred following your death, contact the attorney of your choice and have that discussion. Litigation over arguing family members is no fun and the only winners are going to be the attorneys. Think about it.

This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship.

James W. Mallonee (Jim Mallonee) is a graduate with a B.A. degree from the University of South Florida and a Master of Science degree from Rollins College in Winter Park, Florida. He obtained his Juris Doctorate from the University of the Pacific, McGeorge School of Law in Sacramento, California. Prior to returning to Florida to practice law, Mr. Mallonee was employed by Intel Corporation for 22 years in such locations as New Jersey, Florida and California.

In addition to being a member of the Florida Bar since 2003, Mr. Mallonee serves on the Charlotte Community Foundation Committee for asset allocation and teaches Business Law at State College of Florida. Mr. Mallonee is also on the Board of Directors for the Military Heritage Museum located in Charlotte County, Florida.

His firm practices law in the following areas: Probate, Wills & Trusts, Guardianships, and Litigation in the areas of Real Estate, Guardianships and Estates. The firm has two locations in Venice and Port Charlotte, Florida.

946 Tamiami Trail, #206
Port Charlotte, FL 33953
(941) 206-2223
Facsimile (941) 206-2224

871 Venetia Bay Blvd., #225
Venice, FL 34285
(941) 207-2223

 

 

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