A trustee is an individual or entity that holds legal title to property for the benefit of another and acts according to the terms of the trust.
Trust accounting is a detailed record that includes information about all income and expenses of a trust. Florida law mandates that a trustee keep the beneficiaries of a trust reasonably informed of the trust and its administration. This imposes a fiduciary duty on the trustee to provide a trust accounting annually to each qualified beneficiary of an irrevocable trust. A trust accounting must include:
- Statements identifying the trust, trustee, and time period covered by accounting,
- Significant cash and property transactions affecting the trust administration during the accounting period,
- Taxes paid, disbursements made to trust beneficiaries, and gains and losses on trust assets,
- Significant transactions that do not affect the amount for which the trustee is accountable, including name changes in investment holdings, adjustments to carrying value, a change of custodial institutions, and stock splits,
- Acquisition values and current values of trust assets capable of valuation,
- Fees and expenses paid to advisors of the trustee, such as attorneys, CPAs, and financial advisors, and
- Compensation and expense reimbursements paid to the trustee
Disputes can arise from the accountings made by a trustee where there is a failure to account or there are any disagreements regarding the distribution of property as listed in a trust. In such circumstances, an objecting beneficiary can make a claim for a breach of trust.
A claim for breach of trust carries with it the risk that the objecting beneficiary may be responsible for the attorneys’ fees and costs if the beneficiary’s claim is unsuccessful. Moreover, Florida law permits a trustee to use trust assets to pay attorneys’ fees and costs for the trustee’s administration of the trust. This could result in the trustee expending trust assets to pay costs associated with the dispute and thus reducing the beneficiary’s share for said attorneys’ fees and costs.
Remedies for Failure to Account
Failing to account is a breach of fiduciary duty. The Florida Trust Code has a section on remedies, which include:
- removing the trustee,
- reducing or denying compensation to the trustee,
- requiring the trustee to repay money to the trust or
- restoring property to the trust by other means or any other relief the court deems appropriate.
Defenses for Failure to Account
Consent, Release or Ratification
A trustee may have a proper defense if a breach resulted from a transaction in which the beneficiary consented to, ratified, or released the trustee from liability. However, the beneficiaries must know all the material facts relating to the transaction and the consent, release or ratification cannot be induced by improper conduct of the trustee.
A trustee may have a proper defense if a qualified beneficiary waived the trustee’s duty to account. A qualified beneficiary may withdraw that waiver. Waivers and withdrawals of waivers must be in writing. Withdrawals of prior waivers are effective only as to accountings for future periods.
Statute of limitations
4-year Statute of Limitations on Accountings Provided:
Once the trustee provides the accounting disclosing all matters to the beneficiaries, then the four-year statute of limitations for breach of fiduciary duty begins to run. If an accounting does not disclose all material matters, then the statute of limitations never runs as to the non-disclosed matters. However, if the beneficiary had actual knowledge of the matter not adequately disclosed, or if the beneficiary has actual or constructive notice that there has been a repudiation of the trust by the trustee, then the four-year statute of limitations will be able to prevent the beneficiary from bringing that claim. “Knowledge” must be proven by clear and convincing evidence.
If a beneficiary has never been provided with an accounting, their claims can only be barred in Florida after the later of
- ten years from when the trust terminates, the trustee resigns, or the fiduciary relationship ends (provided the beneficiary actually knew of the existence of the trust and the beneficiary’s status as a beneficiary during those ten years);
- twenty years after the date of an act or omission of the trustee (provided the beneficiary actually knew of the existence of the trust and the beneficiary’s status as a beneficiary during those twenty years); or
- forty years after the termination of the trust, the trustee resigns, or the fiduciary relationship ends.
Repudiation of Trust
The four-year statute of limitations can also be triggered by repudiation of a trust. If a beneficiary knows that a trustee has not rendered an accounting for several years, this alone does not trigger the statute of limitations time period because mere knowledge of a breach is not considered to be a repudiation of a trust. However, if the beneficiary demands an accounting and the trustee refuses, that may put the beneficiary on notice that the trustee has repudiated the trust, thus triggering the four-year statute of limitations.
6-month Statute of limitations with a “limitation notice”
A trustee can now shorten the standard four-year time period by providing the beneficiaries with a “limitation notice” at the time of providing the accounting and under the Florida Trust Code. This limitation notice advises the beneficiaries that an action by a beneficiary against the trustee for any matter adequately disclosed in the accounting may be barred unless an action is commenced within six months after receipt of the accounting.
However, if a trustee provides a “trust disclosure document” to a beneficiary and that document provides sufficient information so that a beneficiary knows of a claim or reasonably should have inquired into the existence of a claim that too can start the running of the statute of limitations or the shorter six-month limitation if accompanied with a “limitation notice.”