Harrell v. Badger
Harrell v. Badger, 171 So.3d 764 (Fla. 5th DCA 2015), 2015 WL 3631639
This case highlights the lack of understanding many trust and estate practitioners have about what "decanting" actually means. Despite the clear language of F.S. 736.04117, it seems many are still confused about when decanting is appropriate, and about how to follow the simple rules provided in the statute.
The decedent here left the remainder of her estate in trust for her son. The trust required the trustee to distribute the net income to the son, and gave the trustee full discretion to make additional payments to or for the benefit of that son. If assets remained at the son's death, the assets were to be distributed to the decedent's other two children.
Following the decedent's death and a dispute among the children, the son's neighbor became the trustee of the trust. He filed a petition to employ his wife as the realtor to sell the decedent's home- the sole asset of the trust- but never received an order granting that petition. The trustee then hired counsel to transfer the trust assets to a special needs trust to qualify the son for governmental benefits. His counsel had him join in a pooled trust they administered, and in the joinder agreement he agreed that upon the dissolution of the son's sub-account, the assets would be used to provide for the other beneficiaries of the pooled trust. The trustee also entered into a "care agreement" which completely mixed up the contracting parties- instead of providing for the trustee's wife to take care of the son, it provided that the trustee's wife would be paid to care for the trustee! At trial, the trustee testified that he was unaware of any requirements for him or his wife to care for the son, despite listing payments to himself and his wife for caregiving on the trust's accountings.
Eventually, the trustee sold the house and paid his wife a commission without court approval. All of these actions were done without any notice to the other children, the remainder beneficiaries of the trust. Later, the trustee's counsel, with no notice to anyone, transferred the funds from the pooled trust to another trust, and as a result were arrested, convicted and sent to prison for misappropriation of the funds in that new trust.
After the arrest and conviction of his counsel, the trustee filed a motion to terminate the trust and finally gave notice to the siblings about what had transpired. In response, they filed a counterpetition against the trustee seeking damages for his failure to obtain court approval before employing his wife, for his failure to notify them of the sale of the house, for decanting of the trust into the pooled trust, and for the cancellation of their remainder interest in the trust.
Astoundingly, at trial the court concluded that the terms of the decedent's trust allowed the trustee to invade the principal of the trust for the son's benefit, and that he had reasonably relied on the advice of counsel and, therefore, did not breach any fiduciary duty to the trust. The trial court concluded that the siblings had suffered no damages because the trust "would have been exhausted at some point in time."
The Appellate Court reversed, holding that pursuant to F.S. 736.04117, a trustee must provide notice to all qualified beneficiaries of his intent to invade the principal of the trust at least 60 days prior to the invasion. Since the siblings had an interest in the principal remaining after their brother's death, the Court held that they qualified as "qualified beneficiaries" under F.S. 736.0103(16). Therefore, the trustee improperly exercised his power to invade the principal of the trust when he failed to notify the siblings.
The Court also held that the trustee failed to meet the requirements of F.S. 736.04117(1)(a) by decanting the trust principal to a trust that did not include only the beneficiaries of the first trust, since the pooled trust provided a contingent remainder interest to other beneficiaries.
Because the Court's ruling about the improper decantation invalidated the trial court's findings about the sufficiency of the siblings' evidence, the Court also reversed the trial court's order imposing attorneys' fees against the siblings.