12 Point Summary of Florida Successor Trustee Duties
Note: Trust administration requires strict compliance with the trust terms and often analysis of complex tax requirements. A trustee is a fiduciary and is held to a high standard of care under Florida law. If you are a successor trustee, we can help. It is important that you follow the advice of an experienced Trust Administration Attorney to avoid or reduce estate taxes or income taxes and to protect yourself against personal liability. Not only are the expenses of an attorney and CPA typically considered routine trust expenses, but failure to utilize such services can expose the trustee to personal liability.
- Show Loyalty To All Trust Beneficiaries. Even if the successor trustee is himself a beneficiary, as trustee he has the duty of loyalty to all the other beneficiaries, including the remaindermen. Remaindermen are beneficiaries who do not have a current interest in the trust income or principal, but have a future interest in the trust.
- Deal Impartially With Beneficiaries. The successor trustee cannot favor the income beneficiaries over the interests of the remainder beneficiaries unless the trust specifically directs otherwise. Typically, the trustee must walk a fine line that balances the interests of the income beneficiaries against the interests of the remaindermen.
- Make Trust Property Productive Of Income. The trust portfolio of assets is expected to achieve conservative growth. Therefore, this duty may be violated if the successor trustee keeps large amounts in a checking account that does not pay interest and does not grow in value. This duty can also be violated if the trustee keeps trust assets in land that does not produce income, such as vacant land or commercial land that does not produce rental income in excess of maintenance costs.
Remember: The sole reason for the trust to exist is to serve the beneficiaries. It is not an employment program for the trustee. If you are administering a trust that has or acquires unproductive assets, consult with us and we can advise you as to your options.
- Follow the Prudent Investor Rule, F.S. §518.11. This rule generally means that the trust portfolio should be broadly diversified and invested in conservative investments designed to stay ahead of inflation but not in aggressive growth. As a Trustee, you are not expected to be Warren Buffet, but you better not lose money or you will need to account to the beneficiaries. Often, it is best to retain the services of a Certified Financial Planner (CFP) experienced in helping manage conservative portfolios. Note: The successor trustee is obligated to exercise reasonable care, judgment and caution in selecting an investment agent.
- Account To Beneficiaries And Keep Beneficiaries Informed. Upon commencement of the trust administration, the successor trustee must inform all income and remainder beneficiaries of his or her acceptance of the trustee duties. If a beneficiary requests it, the successor trustee is required to provide that beneficiary with a complete copy of the trust document, including any amendments as well as relevant information about the assets of the trust and the particulars relating to administration. In addition, even without request, all beneficiaries must be provided with an annual statement of the accounts of the trust pursuant to F.S. 736.0813.
- Keep Trust Assets Separate. The successor trustee must keep the assets of each trust separate and keep his personal assets separate from the trust assets. This requires separate bank accounts, brokerage accounts, and safe deposit boxes for trust assets. It is particularly important that you keep the assets of the Credit Shelter Trust (also known as the AB Trust, Marital and Family Trust, or Bypass Trust) separate from all other assets, since these assets will pass tax-free at the death of the income beneficiary. If the successor trustee comingles any other assets in with these assets (or even simply takes the assets out of the trust and mixes them with her personal assets), in addition to breaching fiduciary obligations, the successor trustee will have subjected these assets to taxation when she dies, whereas they would not have been subjected to tax otherwise.
- Avoid Conflicts Of Interest And Self-Dealing. The successor trustee cannot buy assets from the trust or sell his personal assets to the trust. He cannot favor himself as a beneficiary at the expense of any other remainder or potential remainder beneficiary. He cannot make any distribution to anyone or any withdrawals from the trust unless specifically authorized by the trust to do so. The trustee is entitled to a reasonable compensation for trust services or compensation as otherwise set forth in the trust. However, the successor trustee cannot otherwise profit or benefit from the trust unless also a beneficiary. Conflicts of interest and self-dealing is a broad area with many traps. If you are a trustee and have any concern as to any specific action or situation, consult with a Miami trust attorney.
- Preserve The Trust Assets And Uphold The Trust. The successor trustee is liable if trust assets are lost, misplaced or destroyed because of inattention or negligence. If the trust assets are equities, the trustee needs to monitor their performance. If the trust assets are commercial real estate, the trustee must monitor that the properties maintain a high occupancy level, rents are collected in a timely fashion, and of course deposited in a trust account. This may require hiring a property manager. The successor trustee should be certain that all trust assets are appropriately insured. For example, if the trust owns a house in south Florida, it is imperative that the home be insured for property and wind damage that may be caused by hurricanes, heavy rains, and the weather related events we experience here. If the house is vacant, there should be a security system for obvious reasons.
- File Tax Returns And Pay Any Tax Due. Each trust has a tax year, which like the personal tax year, ends annually on December 31. The trust must have a taxpayer identification number and file a tax return no later than April 15 of the year following. The income tax return for the trust is Form 1041, the Fiduciary Income Tax Return. The best advice here is to use a professional CPA who routinely prepares 1041’s. As mentioned above, such an expense is a typical cost paid by the trust.
- Minimize Income Taxes. Income generally includes interest earned on bank accounts, CDs, bonds or mortgages, and dividends on stocks and mutual funds as well as all rental income. The trust has a high tax environment: income not distributed may be taxed at 39.6%. Therefore to minimize income taxes, the trustee may need to distribute income out to the income beneficiaries if the trust terms so allow.
- Pay Trust Expenses. The administration of the trust necessarily requires certain expenditures. Example of expenses include insurance, real estate taxes, CPA fees, and legal services.
- Good Record Keeping. The trustee needs to keep accurate records of every dime that comes into the trust and every dime that goes out. For small trusts, we recommend using Quickbooks or Quicken. If the successor trustee does not know these programs, it is highly advisable to hire a professional bookkeeper. If the successor trustee becomes disabled or dies, another person must be able to seamlessly step into her shoes and understand the current status of trust matters.
Note: Before the trust is terminated or before the trustee can be released, the trustee will need to provide a detailed accounting to all beneficiaries for all expenses, income and distributions during the time the trustee served.
Miami trust attorneys at Rarick & Beskin, P.A., have assisted families and business persons for over 20 years. Our firm has worked with over 400 similar law firms located in states outside of Florida to represent their clients in legal matters concerning trust administration and probate. To schedule a meeting with a Miami trust attorney call (305) 556-5209 or (954) 861-1426, or e-mail firstname.lastname@example.org. We look forward to meeting you!