In Florida, a common estate planning scenario is to create revocable trusts, sometimes referred to as a “Living Trust” and place all or most of the assets into the trust. The Settlor, the one setting up the trust, is typically named the initial trustee and deals with the trust property in the same fashion as if the assets were still owned by and in the name of the Settlor, with the absolute right to amend or revoke the trust and without having to account for any beneficiary.
Upon the death of the Settlor, everything changes. As the Settlor can no longer amend the trust, it becomes “irrevocable” at which time the beneficiaries named in the trust become established or vested. Many of these “Living Trusts” are set up to provide that upon the death of the Settlor the trust terminates and distribution is made of the trust assets to the named beneficiaries, similar to a will, but without court supervision.
Before anything can be done with the assets in a Living Trust which terminates after the death of the Settlor, a successor trustee must assume the trusteeship of the trust. Typically, the Settlor has identified and nominated someone – someone highly trusted – to be the successor trustee to take over the trust upon the Settlor’s death. Many times, a Trust Company is named as the successor trustee. The nominated successor trustee should immediately engage an attorney to guide him or her through administering a trust.
The Florida Trust Code then requires that a successor trustee, within 60 days after finding out that a formerly revocable trust has become irrevocable (which usually means within 60 days of the Settlor’s death), to give notice to the beneficiaries of the trust’s existence, the identity of the Settlor or Settlors, the right to request a copy of the trust instrument and the right to accountings under that section of the Code.[i]
Once the successor trustee is in place to discharge the duties as trustee, are the assets then immediately distributed to the beneficiaries named in the trust? The answer is usually no even though the successor trustee is under a fiduciary duty to make distribution when the trust terminates. The termination date of a trust means the time at which it becomes the duty of the trustee to wind up the administration of the trust. “The period for winding up the trust refers to the period after the termination date and before trust administration ends with the complete distribution of the trust estate”.[ii]
Following a trust’s termination date, the trustee has a duty within a reasonable time to distribute the trust property to the persons entitled to it and to make preliminary distributions as appropriate within the wind-up period.[iii] The Florida Trust Code provides that the successor trustee shall proceed expeditiously to distribute the trust property to the persons entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes.[iv] The Code also provides that on termination of the trust, the successor trustee continues to possess the powers appropriate to wind up the administration of the trust and distribute the trust property to the persons entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes.[v] Many practitioners refer to this period between the Settlor’s death and final distribution as the “windup” period or the “windup” trust.
The common law is clear that a successor trustee’s powers and duties do not end on the trust’s termination but continues for a reasonable amount of time to wind-up the administration of the trust prior to making the distribution in a manner consistent with the purposes of the trust and the interests of the beneficiaries.[vi]
This question has no clear answer as each case is different depending on the assets held in the trust, whether those assets are easily valued and distributable and determining and satisfying any trust obligations including any tax liabilities. Each trust would be judged by the facts unique to its administration. There should be a legitimate reason for the trustee to have a long “wind-up” period, other than wanting to collect additional fees and remain in control of the trust assets. On the trust’s termination, the assets belong to the beneficiaries only subject to the “wind-up” period.
As part of the wind-up process, the successor trustee should provide a final accounting which should include a plan of distribution for any undistributed assets shown on the final accounting.[vii] The successor trustee cannot be held liable for not making distributions before the expiration of the six-month limitation period within which beneficiaries can challenge the final accounting, provided the beneficiary receives a limitations notice with the final accounting. The beneficiaries can always waive the six-month period by approving the accounting and releasing the successor trustee from liability as providing a final accounting is the only mechanism available to the trustee to determine and limit liability. As an alternative, the trustee may request judicial approval of the accounting but this procedure would invariably take longer than six months and be an unnecessary expense to the trust.
When these “Living Trusts” terminate upon the Settlor’s death, a successor trustee who fails to distribute assets and bring the trust administration to a conclusion in a timely fashion after the death of the Settlor has committed a breach of fiduciary duty and can be held accountable.[viii]
The breach of the fiduciary duty to timely make distribution is usually not done in isolation but typically involves other breaches committed by the successor trustee, including failing to provide an annual accounting and either mismanaging the trust assets or using those assets for his or her own benefit.
[i]Fla. Stat. §736.0813(1)(b).
[ii]89 Restatement of The Law on Trusts 3d, comment b.
[iii]89 Restatement of The Law on Trusts 3d, comment (e).
[iv]Fla. Stat. §736.0817
[v]Fla. Stat. §736.0816(25)
[vi]Restatement of the Law Third, Trusts §89; Bogert’s The Law of Trusts and Trustees §1010.
[vii]Fla. Stat. §736.08135(2)(f)
[viii]DeBello v. Buckman, 916 So.2d 882 (Fla. 4DCA 2005)