Can the trustee of a revocable trust be sued for failure to carry out the written instructions of the settlor given prior to death, when the payments are to be made after death? A recent appellate decision from Florida says yes, the trustee can be liable for breach of trust and other damages. Kritchman_v_Wolk (3rd DCA 2014).
Mrs. Kritchman established a revocable trust. The revocable trust contained standard language that, during the settlor’s lifetime, the trustee was to “pay such sums from principal as Mrs. Kritchman may direct at any time.”
Mrs. Kritchman gave a written instruction to the co-trustees, a family member, and Wells Fargo, to pay Hunter’s expenses for attending Yale:
As you know, I have agreed to pay for Hunter’s college education at Yale, as I have for the last 2 years. Thank you for your assistance with the logistics. He will be beginning his junior year in September 2010 and his senior year in 2011. Please make arrangements so that his costs will be paid for those 2 years as well. The cost for his junior year is forty nine thousand eight hundred dollars, which you will see when the school sends its documentation in the next month or so.
Thank you for taking care of this on my behalf.
[/s/ Mrs. Lola Kritchman]
Mrs. Kritchman then passed away. The co-trustees paid for one additional semester of college, and then refused to pay more.
The appellate opinion does not explain the arguments of Wells Fargo as to why the payments were not made. We can surmise that, once Mrs. Kritchman passed away, the instructions for distributions post-death would have run afoul of Florida’s Statute of Wills, which requires that all testamentary directives in wills and trusts be in writing and witnessed. Section 736.0403(2)(b) of the Florida Trust Code provides as follows:
The testamentary aspects of a revocable trust, executed by a settlor who is a domiciliary of this state at the time of execution, are invalid unless the trust instrument is executed with the formalities required for the execution of a will in this state.
In any event, the appellate court held that the amount necessary to pay the tuition should have been set aside and made available to pay the tuition, and that Wells Fargo could have established a “reserve” to do so, no matter that the actual payments were to be made post-death.
The Court held that Wells Fargo’s failure to carry out the terms of the trust violated a number of provisions of the Florida Trust Code, including
(A) The failure to administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries (736.0801);
(B) The failure to act impartially as among beneficiaries (736.0803);
(C) The failure to administer the trust prudently by considering the purposes, terms and distribution requirements of the trust (736.0804).
The court held that these failures constituted a breach of trust under the Florida Trust Code. The appellate court affirmed the lower court’s holding that the attorney fees paid to the lawyers for Wells Fargo had to be returned to the trust (a “disgorgement” order), because, under the Florida Trust Code, once a breach of trust is alleged against a trustee, the trustee is required to give notice and an opportunity to object to all trust beneficiaries, which was not done.
What could the co-trustees have done better? One of the great things about probate and trust law (as opposed to almost every other area of law) is that the court system welcomes with open arms questions from fiduciaries if there is any doubt as to what to do. The Florida Trust Code specifically permits a trustee to file a trust action to do the following (736.0201(4)):
(A) Determine the validity of all or part of a trust;
(E) Ascertain beneficiaries, determine any question arising in the administration or distribution of any trust, including questions of construction of trust instruments; instruct trustees;
(F) Obtain a declaration of rights;
(G) Determine any other matters involving trustees and beneficiaries