Florida Trust Administration

Trusts may be beneficial in many different circumstances. One common example is the use of a revocable living trust in place of a will, which is discussed in more detail below. Some other reasons people leave money in trust include protecting assets against creditors, ensuring that money and property stays in the family as children and grandchildren may marry and divorce, providing for loved ones with special needs, and providing support for family members who may not benefit from direct transfers, such as adult children with addictions or gambling problems.

A trust allows the grantor to appoint a trusted person or entity to manage the trust assets on behalf of the beneficiaries and distribute them according to the grantor’s instructions.

While many people just beginning their estate planning journey ask whether a will or living trust is better, the answer depends on your specific goals and priorities. A living trust can expedite the process of passing property to beneficiaries, and is typically more private than a will, since probate is a matter of public record. A living trust also allows the grantor greater control over how and under what circumstances assets and income are distributed. On the other hand, some people favor wills because they are generally easier to create and maintain during their lifetimes—while a will generally requires a refresh when there’s a significant change such as divorce or a new child, the grantor of a living trust must remember to title each new asset acquired to the trust throughout his or her lifetime, or risks created a messy trust-probate hybrid.

The specific actions taken by a Florida trustee vary depending on the property in the trust and the grantor’s instructions. However, the trustee’s general duty is to manage the trust assets for the benefit of the beneficiaries of the trust, and to distribute assets or trust income according to the terms of the trust. The trustee is also responsible for administrative duties such as preparing annual accountings and paying taxes.

The trust administration process is unfamiliar to most people who have been appointed trustee by a friend or family member. In that situation, it is usually in everyone’s best interest for the trustee to work with an experienced trust administration attorney.

Generally, a trust must file income tax returns for any year in which the trust receives at least $600 in income. A trust is also required to file a return even if it did not have $600 in income, if the trust has one or more non-resident aliens as beneficiaries. A grantor trust may not be required to file a return if the grantor reports all income on his or her personal tax return.

The consequences of failure to file can be serious, so if you are in doubt as to whether or not the trust you administer must file tax returns, consult an experienced trust attorney or an accountant or tax professional familiar with taxation of trusts.

There’s no legal requirement that a person creating a trust work with an attorney. However, trust creation is complex, and attempting to do it yourself can have unintended consequences. In the case of a living trust used for succession planning, those consequences may not become clear until after you’ve passed, making it difficult or impossible to correct the problems and proceed according to your original intentions.

There are also formal requirements that most people are unaware of. For example, a trust used in place of a will is generally not valid in the state of Florida unless it has been executed in the same manner required for a will.

So, while having an experienced trust attorney create your trust isn’t mandatory, it is typically in the best interests of both the grantor and beneficiaries.

Florida law mandates only that a trustee should be paid a reasonable fee, which is not particularly useful for an inexperienced person attempting to determine trustee compensation. Often, trustees are paid on a percentage basis, but this can lead to unreasonably low payment for the trustee of a small trust. Similarly, hourly compensation is acceptable, but has been determined to result in unreasonably low compensation in some cases. Thus, compensation is best determined on a case-by case basis.

When compensation is in dispute, Florida courts consider a variety of factors, such as the amount of income collected and distributed, the trust’s capital assets, local wage norms for similar work, the number of hours invested, any special qualifications of the trustee, and how well and faithfully his or her responsibilities have been carried out.

The mechanism for terminating a trust differs depending on the type of trust and the circumstances. For instance, a revocable trust can be revoked by the grantor at will. The general procedure is fairly simple, and involves a letter to the trustee from all creators stating their intention to revoke the trust, followed by transfer of property out of the trust. However, if the trust terms set forth specific procedures, those procedures must be followed.

The term “irrevocable trust” suggests that this type of trust can’t be revoked at all, but that isn’t entirely accurate. While the grantor can’t simply decide to revoke the trust or to add or remove beneficiaries, certain irrevocable trusts can be dissolved by agreement of the trustee and all beneficiaries after the grantor’s death. Florida law also sets forth specific circumstances under which a court may revoke or revise an irrevocable trust that is no longer serving its intended purpose.

Many people aren’t aware that in most states, trusts can’t be perpetual. Limitations differ from state to state. Florida allows for “dynasty trusts”—trusts intended to protect family assets across generations—that can endure for as long as 360 years.

While the idea of leaving behind a trust that will provide for your family for a dozen generations or more is appealing, it’s important to walk through the ramifications of a centuries-long commitment with your legal and financial professionals before making a decision.

Florida law provides that a trustee is entitled to reasonable compensation. Unfortunately, there is no further definition of what is reasonable, which can lead to some questions. Generally, a trustee’s fee will be between 1 and 3 percent of the total trust assets. 

The trustee’s fees are often detailed in the trust itself or in a separate agreement with the trustee. If the trust document doesn’t say anything and there is no agreement, the court has the jurisdiction to determine the fees. Even when there is a document detailing the trustee’s fees, the court does have jurisdiction to adjust those fees. Usually, such an occurrence happens in one of two scenarios: 

• The trustee’s fees specified in the document are unreasonable.
• The duties the trustee will have to carry out are substantially different from the duties contemplated when the fees were set.

There is no hard and fast guide for determining a reasonable trustee’s fee. However, the Supreme Court provided some factors for courts to consider. These factors are not binding, so the court may look at factors other than these and particulars related to each specific trust in determining what fee arrangement is reasonable.

The Supreme Courts factors include:

• The amount of income received and disbursed by the trustee
• The success, or failure, of the trustee’s administration
• Any unique skills the trustee brought to the trust administration process
• The amount of risk and responsibility assumed by the trustee
• The amount of time the trustee spent administering the trust
• The customary fees for trustees in the community
• The customary fees paid to trust companies or banks serving as trustees in the community
• Estimates provided by the trustee of the value of the services they provided

It is not uncommon to see multiple trustees named, especially when the trust is complex or contains a significant number of assets. The important thing to be aware of in multiple trustee situations is that the trustees will generally not receive additional fees unless the trust document expressly provides otherwise or if one of the trustees is providing a special service to the trust.

The trustees will have to divide the fee amongst themselves. If the trustees cannot agree on an equitable division, the court has the jurisdiction to step in and make that determination.

If you are an interested party and feel a trustee is being paid an unreasonable fee, you have the right to seek a court order to evaluate the reasonableness of the fee. It’s important to remember that the trustee is not entitled to compensation just because they are a trustee. The trustee must provide demonstrable services and benefits to the trust.