THE SUCCESSOR TRUSTEE VIOLATED §736.04117, FLA. STAT. BY FAILING TO PROVIDE 60 DAYS NOTICE PRIOR TO TRANSFERRING TRUST ASSETS TO A SPECIAL NEEDS TRUST, AND BY DECANTING THE TRUST TO A SECOND TRUST WHICH FAILED TO INCLUDE ONLY BENEFICIARIES OF THE FIRST TRUST

Posted on June 22, 2015

In Harrell v. Badger, 2015 Fla. App LEXIS 8918 (Fla. 5th DCA 2015), Rita Wilson (“Decedent”) created a will which provided for a Trust for her adopted son, David Wilson (“Wilson”), which Trust was to receive the remainder of her Estate upon her death. The trustees of the trust selected by Decedent were her sisters as co-trustees, who were to distribute the net income to Wilson and were given the discretion to make additional payments to the son or for his benefit for his support, maintenance and education or to meet emergencies such as illness as they determined to be proper and necessary. If at the son’s death assets remained, they were to go to the Decedent’s other children, Joann Harrell (“Harrell”) and Barbara Dake (“Dake”); Harrell and Dake are collectively referred to as “Appellants”. However, Decedent’s sisters resigned their role as co-trustees after Rita Wilson’s death and Wilson consented to Joann Harrell’s substitution as trustee.  Wilson is the biological son of Dake and biological nephew of Harrell.  The Decedent legally adopted Wilson from Dake. 

Following disputes with the Appellants, Wilson petitioned the trial court to remove Harrell and to appoint Wilson’s neighbor, Badger, as successor Trustee. The trial court granted Wilson’s petition and Badger became the Trustee.  Badger (“Appellee”) was required to post a trustee’s bond and to file semi-annual accountings.  Badger filed a petition to authorize his wife to be employed as the realtor for the sale of the Decedent’s house, which was the sole remaining asset of the Trust. Despite holding a hearing, he trial court never entered an order approving Badger’s request.  Prior to posting the requisite bond, Badger approached Ross and Linda Littlefield (the “Littlefields”) with the intent of transferring the Trust’s assets into a special needs trust to qualify Wilson for government benefits.  Badger hired Linda Littlefield as counsel for the Trust.  Wilson signed a joinder agreement to create a sub-account of the Florida Foundation for Special Needs Trust (“FFSNT”).  FFSNT was a pooled trust administered by the Littlefields.  The joinder agreement provided for the dissolution of the son’s sub-account after Wilson’s death, stating any funds remaining would be subsumed into the FFSNT and used to provide for other beneficiaries of the pooled trust.  The joinder agreement did not list the Appellants as remainder beneficiaries or consider their interest in the original Trust.  Badger sold the house employing his wife as realtor without court approval and wired the net proceeds after payment of expenses and the wife’s five percent (5 %) sales commission to the FFSNT.  The Littlefields transferred all funds from the FFSNT into another trust, the JNN Trust, apparently without Wilson’s consent. Approximately two (2) years later the Littlefields were arrested, convicted and sentenced to prison for misappropriation of funds in the JNN Trust. 

Subsequent to their conviction, Badger filed a motion to terminate the Trust and gave notice for the first time to the Appellants about the sale of the house and the transfer of all funds into the FFSNT.  Badger also filed a series of uncorroborated accountings.  Appellants filed a counter- petition against Trustee seeking damages for alleged breaches, including not notifying them of the sale of the house, for not obtaining court approval before hiring his wife to sell the house, for decanting the Trust into a pooled trust, and for cancellation of their remainder interest in the Trust. Badger’s primary defense was the provisions of Section 736.0816(20), Fla. Stat., which allows a trustee to rely on the advice of attorneys, accountants, and other experts.  Badger also requested retroactive approval for the employment of his wife as realtor.  The trial court found that the terms of the Decedent’s will allowed Badger to invade the principal of the Trust for her son’s benefit and that the Trustee reasonably relied on the advice of his attorneys and the Littlefields, and, therefore, didn’t breach any fiduciary duty to the Trust. The trial court further found that Appellants had suffered no damages because the Trust “would have been exhausted at some point in time.”  The trial court terminated the Trust, retroactively approved the employment of Badger’s wife, dismissed Appellant’s counterclaim for damages, and awarded attorneys’ fees to Badger under Section 736.1004(2), Fla. Stat.

The Fifth DCA observed that Section 736.04117(4), Fla. Stat., requires a trustee to provide notice to all qualified beneficiaries of his or her intent to invade the principal of a trust at least sixty (60) days prior to the invasion.  The Fifth DCA reversed the trial court on the notice issue, holding that because Appellants had an interest in the distribution of any principal remaining after Wilson’s death they were “qualified beneficiaries” pursuant to Section 736.0103(16), Fla. Stat.  Badger improperly exercised his power to invade the principal of the Trust by failing to provide any notice to Appellants prior to transferring the entire contents of the Trust to the FFSNT.  The Fifth DCA held the Appellant also violated 736.04117(1)(a)1, Fla. Stat., by decanting the Trust principal to a second trust that which failed to include only the beneficiaries of the first trust.  The second trust, the FFSNT sub-account, defined Wilson as the primary beneficiary but provided a contingent remainder interest to beneficiaries of the other FFSNT sub-accounts. The Fifth DCA also reversed the trial court’s award of attorneys’ fees and observed it reviews a trial court order on a motion for attorneys’ fees in an action challenging the exercise of a trustee’s power for an abuse of discretion.  Section 736.1004, Fla. Stat., requires a trial court to award attorneys’ fees and other costs “as in chancery actions”.  The chancery rule allows a trial court to apportion the costs between the parties or require all costs to be paid by the prevailing party.  The Fifth DCA observed the equities of the case did not favor Badger, but found the trial court did not base its award on equitable considerations.  The Fifth DCA held the award of attorneys’ fees to Badger was an abuse of discretion and remanded for a reasonable apportionment of the parties’ attorneys’ fees.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.

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