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Planning Ahead for Trust and Estate Successors in Florida

Trust and Estate Successors

This week’s topic stems from a client question of what exactly is a successor trustee?  It reminded me that the concept of trust and estate successors can be about as foreign as everything else in the odd world of estate planning legal mumbo jumbo.  Thus, in my relentless pursuit of providing a quality Florida estate planning education I will endeavor to explain the concept of estate successors and the various roles involved. Along with the various roles, you also need to know that there is a way to appoint trust and estate successors that maximizes the effectiveness of the estate plan and minimizes potential conflicts. For these reasons, planning ahead for trust and estate successors in Florida is a critical part of Florida estate planning.

Identifying the Roles in For Trust and Estate Successors in Florida

A key component of any estate plan is the successful placement of “successors” who are to take charge of various duties in the event the primary person is unable to continue.

These various roles include the successor trustee in Florida, successor Florida power of attorney, successor healthcare surrogate in Florida, and the successor Florida personal representative of the last will (aka executor).  Depending upon the estate, a guardian (or successor guardian) may also be appointed.

A successor for any of the above roles is essentially the person who steps in for the original party.

For example, the successor to the trustee is defined as the successor trustee.

To put planning ahead for trust and estate successors in Florida into proper context, when someone establishes a revocable living trust in Florida (defined as the settlor), they generally appoint an initial trustee and this appointee is often themselves.  In the case of a joint trust, the initial trustee would be a dual role as co-trustees.   When a settlor can no longer manage the affairs of the trust, the successor is designated to step and an manage the trust assets on behalf of the settlor while living.  Upon the settlor’s death, the successor is designated to administer the trust by distributing income and assets pursuant to the terms of the trust.

In the same way that a successor trustee manages the affairs of the trust, a successor durable power of attorney in Florida would manage business affairs as designated in that document and so forth for the healthcare surrogate, personal representative and designated preneed guardian in Florida.

Guidance for Choosing a Florida Successor Trustee

Planning ahead for trust and estate successors in Florida is not just a trivial detail.  Deciding on the right trustee can be the difference between a trust that runs smoothly and achieves all its purposes and a trust that produces little more than headaches and legal fees.  Choosing the right trustee takes careful consideration and a little knowledge about the role and duties of a trustee.  And, when in doubt, consultation with an experienced Florida trust attorney can be a big help, too.

What is the Role of a Successor Trustee in Florida?

When it comes to planning ahead for trust and estate successors in Florida, a trustee’s precise role can vary between trusts. But, in general, the job is to administer trust assets for the benefit of the trust’s beneficiaries and in accordance with the grantor’s instructions.  Administration might include (among other things) making investment decisions, arranging for maintenance of real estate, purchasing insurance for trust assets, hiring professionals to work for the trust, ensuring that the trust files any necessary tax returns and pays required taxes, and acting on the trust’s behalf in any legal proceedings.

Distributions to beneficiaries are also a big part of a trustee’s job.  Depending on the trust’s terms, the trustee might have wide discretion in deciding when and how much to distribute, or distributions may be subject to a concrete schedule and formula defined by the grantor.  Either way, the trustee is responsible for ensuring distributions are made in compliance with the trust’s terms.

What are a Florida Successor Trustee’s Obligations?

One important area of planning ahead for trust and estate successors in Florida, relates to what obligations an appointee will have and whether he or she can handle these obligations which are commonly known as trust administration in Florida.

While administrative tasks differ from one trust to another, a Florida trustee must always perform his or her duties in compliance with both the trust instrument’s instructions and Florida law.  Under both common law and Florida statutes, trustees have a “fiduciary duty.” Under that standard, trustees must look out for the best interests of beneficiaries and honor the trust’s terms and purposes.

As part of the fiduciary duty, the Florida Trust Code commands trustees to act with loyalty and prudence.  When a trustee is loyal, he or she studiously avoids conflicts of interest or self-dealing.  A trustee who lends trust money to him or herself or who uses trust assets for personal purposes potentially breaches the duty of loyalty.

The duty of prudence means, under Florida law, using the care, skill, and caution that a reasonably prudent person would exercise in the trustee’s position.  Making high-risk investments in questionable businesses could breach the duty of prudence.  However, simply making investments that don’t pan out generally won’t be considered a breach of a trustee’s duties.

A trustee has the power to take nearly any action in relation to trust estate assets in Florida that an individual could take with his or her own property.  But, when doing so, a Florida trustee is legally required to honor any instructions, limitations, or restrictions established by the grantor—and to always bear in mind the purpose of the trust.

So, if a grantor creates a trust for the purpose of promoting eco-friendly energy—and the trustee invests trust assets in a business that specializes in strip-mining high-sulfur coal in jurisdictions without environmental protection laws—the trustee probably breached the fiduciary duty…even if the investment earns terrific returns.

The reason trustees are held to such high legal standards is that there’s a lot at stake.  It’s implied in the name, after all.  The trustee is indeed the one in whom trust is being placed.  Both the grantor and the beneficiaries are relying on the trustee to act competently and honestly.

Selecting the Right or Wrong Successor Trustee in Florida

Because the wrong pick can result in lost wealth, failure of a trust to achieve its purposes, or worse, planning ahead for trust and estate successors in Florida by choosing the right trustee can be one of the most important decisions that goes into creating a Florida revocable or irrevocable trust.

The decision frequently hinges on the nature and purpose of the individual trust and on the assets it will hold.  Some more complex trusts need a trustee with a high degree of legal skill or investment knowledge.  With a simple Florida living trust, technical expertise may be less important.  As a general rule, though, you always want a trustee you’re confident is trustworthy, competent to perform the relevant duties, and both willing and able to serve as trustee.

               Option 1:  Naming Yourself Trustee

Naming yourself as trustee is a possibility for some trusts.  You can be reasonably certain you won’t steal from your own trust, and you’ll be hard-pressed to find a trustee more familiar with your goals and values.  On the other hand, you might not personally have the time, interest, or expertise to act as trustee.  Or, you might want someone who can more objectively and independently administer the trust.  And, for some types of trusts to function as intended, you have to select someone else to serve as trustee.

Even if you opt to name yourself trustee of a revocable living trust, you’ll still eventually need a successor trustee or co-trustee who can take over administration and distribution of trust assets in the event of your incapacity or after your death.  So, you’ll ultimately need to find a reliable trustee, which means you’ll need to choose either an individual or an institution to serve in the role.

               Option 2:  Naming an Individual Trustee

An “individual trustee” just refers to a natural person—as opposed to a financial institution.  It can be as simple as naming your spouse, another family member, or a close friend as trustee.  Or an individual trustee might be a financial adviser, accountant, or lawyer.

With an individual trustee, you get the benefit of choosing someone who is familiar with your objectives, values, and intended beneficiaries.  You’ll want to pick someone you know is dependable and capable.  For the most part, individual trustees are less expensive than institutions.  And, for small family trusts, individual trustees may waive the trustee’s fees altogether.

Depending on the trust’s nature, the trustee’s job may require a lot of work, so you need to find someone who is able and willing to put in the necessary time.  Geography can also be a factor.  If your trust will hold commercial real estate in Florida, a reliable old friend in Texas may not be in a position to do the job successfully.  If you’re asking for a big commitment of time and energy, it may be better to choose an institution that offers professional trustee services.

Naming Co-Trustees in Florida

When it comes to planning ahead for trust and estate successors in Florida, appointing co-trustees can be a smart way to reduce the risk of trustee misconduct or costly mistakes.  If two family members serve as co-trustees, they can each verify that the other is acting diligently in beneficiaries’ best interests.  Just knowing there is another set of eyes reviewing account statements can remove temptation.  Or, a co-trustee who is more risk-averse can help balance out a trustee with more aggressive investment instincts.

Even if you use an institutional trustee, a close friend or family member acting as co-trustee can help ensure the trust’s intended purposes are being pursued.  As noted above, an institution won’t be familiar with the grantor’s values and may be less likely to closely track any preferences stated in a trust instrument.  An individual co-trustee can raise these issues with an institutional co-trustee, and, when necessary, take the lead in finding another institutional co-trustee if the current one isn’t up to snuff.

               Option 3:  Naming an Institutional Trustee

A corporate or institutional trustee is usually a bank or other financial institution with a department focusing on trusts.  Basically, the grantor designates the bank as trustee, and the bank handles the trust’s administration—choosing investments, managing assets, and making distributions in accordance with the trust’s terms.  In return, the trustee institution receives fees for serving in the role.

If you opt for an institutional trustee, it’s vital to choose an established entity with a solid reputation.  You’re much less likely to run into problems with a bank that’s been in business for a century than with a fly-by-night startup that’s just getting into wealth management.

Credible institutional trustees offer the advantages of experience and expertise.  They’re knowledgeable about how trusts function, and, in some cases, are skilled in choosing investments.  An institutional trustee can also provide long-term stability for dynasty trusts or other trusts intended to remain in place for multiple generations.

The downsides of institutional trustees are that they tend to be more expensive—sometimes much more so.  And a corporate trustee won’t be as familiar with the other parties.  A bank has, at best, only a superficial acquaintance with your values and goals and with beneficiaries’ individual needs and unique circumstances.  A family member, close friend, or even personal financial adviser is much more likely to be aware of factors not explicitly stated in the trust instrument.

On the other hand, the ability to remain neutral and detached can sometimes be beneficial.  There are situations in which a beneficiary’s long-term interests are better served by a trustee who won’t hesitate to say ‘no.’

In the end, it’s impossible to say whether an individual or corporate trustee is “better” because a lot depends on the specific trust.  A trust with considerable assets intended solely to build wealth and provide standardized distributions might be better off paying a bank to act as trustee.  But if you’re creating a living trust primarily as a means of efficiently transferring moderate wealth in Florida to your children and grandchildren—or you intend to give the trustee discretion to choose beneficiaries and make distributions in furtherance of a specific purpose that is important to you—you might want to pick a capable, trustworthy friend or family member who has a better understanding of what you’re trying to accomplish.

Estate successors must be designated skillfully so as to maximize competency and harmony and minimize the likelihood of conflicts.

The guidance above concerning the appointment of a successor trustee in Florida also apply to the other estate successors mentioned above.  Also, the precautions noted above are intended to illustrate the broader point that the person or persons appointed as successors in the various roles noted above serve in a very important function, and your choices can make the difference between a harmonious estate and an estate riddled with conflict.

Florida estate planning tips to limit sibling rivalry

For example, I have observed that occasionally a parent will appoint a favorite son or daughter to serve in various roles and essentially preside over the remaining siblings.   Although this approach may have made sense to the parent, such designations can naturally lead to strife.  In the world of estate planning, strife is bad because it can lead to sibling rivalry in Florida estates and even theft from the estate or other forms of drama.

As mentioned above concerning co-successor trustees, it can be effective to appoint multiple siblings to serve as co-fiduciaries in various roles OR it may be advisable to mix up the appointments so that, for example, one sibling may serve as successor power of attorney and another as the healthcare surrogate.  It is often the case, that one sibling may be more suited than another for business decisions and another more suited for medical decisions, etc.

An important determining factor is the relationship between siblings and if applicable other appointees.  If relationships are currently strained, they may become more contentious in the event of a death.  If one appointee is really ideal, then the key question is whether they will be able to bring people together or on the other hand will they foster conflict.

Naming a trustee is a major decision, and it’s a decision that shouldn’t be made lightly.  A consultation with an experienced Florida estate planning attorney can help ensure you choose wisely.

All of these questions are very specific given the family relationships and goals of the estate plan and thus must be carefully considered in every case.

Steve Gibbs, Esq.

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