Whether or not a beneficiary is a “qualified beneficiary” of a trust controls whether that person receives information and can otherwise participate in the administration of the trust. The recent Florida case Rachins v. Minassian, 251 So.3d 919 (4th DCA 2018) explains how to determine who is a qualified beneficiary of a layered trust (a trust with subtrusts).
What is a Qualified Beneficiary of a Trust Under Florida Law?
Florida Statute 736.0103(4) defines the term “beneficiary” as follows:
“Beneficiary” means a person who has a present or future beneficial interest in a trust, vested or contingent, or who holds a power of appointment over trust property in a capacity other than that of trustee. An interest as a permissible appointee of a power of appointment, held by a person in a capacity other than that of trustee, is not a beneficial interest for purposes of this subsection. Upon an irrevocable exercise of a power of appointment, the interest of a person in whose favor the appointment is made shall be considered a present or future beneficial interest in a trust in the same manner as if the interest had been included in the trust instrument.
A “qualified beneficiary” is defined at Florida Statute 736.0103(16) as a much narrower group of persons, as follows:
“Qualified beneficiary” means a living beneficiary who, on the date the beneficiary’s qualification is determined:
(a) Is a distributee or permissible distributee of trust income or principal;
(b) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (a) terminated on that date without causing the trust to terminate; or
(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date.
In the words of the Rachins court:
In effect the class is limited to living persons who are current beneficiaries, intermediate beneficiaries, and first line remainder beneficiaries, whether vested or contingent.” Grimsley, supra, § 16:1. For example, contingent remainder beneficiaries of a trust are qualified beneficiaries under section 736.0103(16), Florida Statutes, because of their interest in the distribution of any principal remaining after the death of a lifetime beneficiary. Harrell v. Badger, 171 So. 3d 764, 769 (Fla. 5th DCA 2015).
A qualified beneficiary is entitled to annual accountings and other information about trust administration. A qualified beneficiary will also have standing in any dispute regarding the trust. A beneficiary who is not a qualified beneficiary is not automatically entitled to annual accountings, and may or may not have standing in a judicial proceeding, depending on how the person’s interest might be affected.
Is a Beneficiary of a Subtrust a Qualified Beneficiary of the Parent Trust?
Yes. A court should disregard a parent – subtrust arrangement, instead looking at who receives the income and principal of the parent trust to determine who is a qualified beneficiary, whether or not it flows through a subtrust.
In the Rachins case, the surviving spouse was the lifetime beneficiary of the Family Trust. At her death, any remaining corpus would be disbursed to a new trust to be created for the benefit of the deceased’s children. The children brought suit against the surviving spouse for maladministration of the Family Trust. The trial court dismissed the lawsuit for lack of standing on the theory that the children are not beneficiaries or qualified beneficiaries of the Family Trust.
The appellate court reversed, holding that the children did have standing, as follows:
The fact that any remaining principal of the Family Trust would flow into a new trust created for the children, as opposed to being distributed to the children outright, does not preclude the children from being beneficiaries of the Family Trust under the statutory definition.
Likewise, the fact that the Family Trust terminates upon the wife’s death does not preclude the children from having a beneficial interest in the Family Trust. Indeed, by definition, a remainder interest in a trust refers to the right to receive trust property upon the termination of the trust.
The children are also qualified beneficiaries of the Family Trust. As noted above, the term “qualified beneficiary” includes a living beneficiary who “[w]ould be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date.” § 736.0103(16)(c), Fla. Stat. (2017). Here, the children are qualified beneficiaries under section 736.0103(16)(c), because they would be distributees of trust principal if the Family Trust terminated in accordance with its terms (i.e., the wife died).