With complex estates, Florida residents often create a trust rather than a last will and testament to protect their estates. Since the trustee can be held personally liable for mismanagement of the trust, a Florida trust administration checklist is one important tool for avoiding liability.
With a living trust, the trustee is usually also the grantor and acts as the manager of the property or estate, holding it “in trust” for the beneficiaries. With a nonliving trust, the grantor is deceased, and the trustee distributes the funds of the trust to the beneficiaries.
A trustee can become financially liable for any improprieties in the trust, which can be a worrisome prospect. At Pathway Law, P.A., in Florida, our trust administration lawyers use several strategies for protecting trustees.
Florida Trust Administration Checklist
If your trustee has little legal experience, the process for managing a trust can be complicated. However, there are a few guidelines that can help every trustee protect themselves from legal action.
- Read the trust documents thoroughly. If you have no legal background, a trust administration lawyer can help you make sense of these documents and ensure you aren’t signing up for more than you can handle.
- Confirm your role as the trustee and what is expected of you in that role.
- Review the trust documents. These documents might include the trust agreement, any relevant powers of attorney, and amendments to the trust agreement. They explain your duties as the trustee in full, which is essential to ensure you are following the rules and expectations written into the trust.
- Make sure you have a list of all the beneficiaries and their contact information. Confirm their relationship to the grantor of the trust. It will fall upon you to make certain they receive any distributions due to them.
- Keep detailed records. You’ll generally need to notify the beneficiaries of the status of the trust yearly, and you need to update them on any big fiduciary changes.
- Always keep assets separate from your personal accounts. You must ensure the assets in the trust are handled properly. Investments must be made wisely and carefully.
- File documents. Documents such as the decedent’s death certificate must be filed in the county where they owned property. This allows for a quicker transfer of property. A copy of the death certificate will also go to the Social Security Administration.
- Gather a copy of the trust agreement and a certified copy of the death certificate to prove your role as trustee.
- Notify beneficiaries of your role. Be prepared to provide copies of the original trust agreement and death certificate.
- Distribute assets to beneficiaries. Asset distribution will be outlined in your trust agreement.
Keeping this checklist in your arsenal is one tool to help you avoid liability as a trustee in Florida. Remember, understanding the terms of the trust is a necessity, as a trustee may be held liable for the mismanagement of the trust.
While large corporations may not balk at being taken to court for millions of dollars, many trustees are one person or a family.
The Three Rules for Trustees
The three rules for trustees are the duty of loyalty, the duty of care or prudence, and the duty of full disclosure. The trustee has a duty to be loyal to the terms of the trust, and misunderstanding those terms could lead to fiduciary mismanagement. That’s when a trust administration lawyer can help by going through the trust terms and helping the trustee understand exactly what they’re responsible for.
Trustees also have a duty of care, which means they will invest or utilize the funds of the trust responsibly. In addition, they have a duty of full disclosure, keeping beneficiaries aware of any changes to the trust.
A fourth duty that is often added is a duty to be impartial. The trustee must treat all beneficiaries equally. This is especially important if the trustee is a family member. Only 32% of U.S. adults report having an estate plan in place, leaving many families to navigate trust and estate issues without clear direction.
FAQs
What Is the 5 by 5 Rule for Trusts?
The 5 by 5 rule for trusts is an IRS rule that allows a beneficiary of the trust to withdraw the greater of $5000 or 5% of the fair market value of the trust in any given calendar year. This allows the beneficiaries to use the money in the trust responsibly.
If a beneficiary of the trust does not withdraw their allotted amount, it may cause tax liabilities, and they may forfeit the amount of the withdrawal.
What Are the Three Rules for Trustees?
The three rules for trustees are the duty of loyalty, the duty of care or prudence, and the duty of full disclosure. A trustee must follow the terms of the trust, manage trust assets responsibly, and keep beneficiaries reasonably informed. When there is more than one beneficiary, trustees are also generally expected to act impartially.
Does a Trust Avoid Liability in Florida?
A trust does not completely avoid liability, though it does provide some protection for the estate. An irrevocable trust may protect assets by removing them from the ownership of the grantor of the trust. They may protect some assets from debtors or creditors as well. A spendthrift trust distributes small amounts of the trust to beneficiaries over a period of time, protecting assets from beneficiaries’ debtors.
Can a Trustee of a Trust Be Personally Liable in Florida?
A trustee may be held personally liable if they have purposely mismanaged a trust, broken one of the three rules for trustees, or spent money in their own interests.
If a trustee is acting in good faith, they may not be held liable; however, they must prove that they were acting in the best interest of the trust beneficiaries. A trust administration lawyer understands the complicated laws that govern trust administration and may be able to help.
Pathway Law, P.A. Can Help
Administering a trust in Florida can leave a trustee with a complicated set of laws to follow to avoid personal liability. At Pathway Law, P.A., our trust administration lawyers have worked in an estate planning capacity for two decades in Windermere, Clermont, Winter Garden, and Eustis. We’ve helped clients establish trusts and administrate them for years. Whether it’s helping you set up a trust or going through the administration process, we’ve got you covered. Contact us today.