Taxation & Estate Planning

2d DCA: Trustee doesn't have to pay interest on funds wrongfully retained in trust

By Juan C. Antúnez

Fleck v. Fleck, --- So.2d ----, 2008 WL 818814 (Fla. 2d DCA Mar 28, 2008)

The linked-to opinion is the second time the trial court's been reversed on appeal in this case (ouch!!).

The first time around the trust beneficiary won on appeal when the 2d DCA reversed the trial court for improperly construing a trust instrument [click here for my blog post on that appeal].

This time around the trustee was the winning side on appeal when the 2d DCA reversed the trial court for making the trustee pay the trust beneficiary interest on improperly retained trust funds . . . in spite of the fact that the trustee had paid the beneficiary all of the over $200,000 of income generated on the retained trust assets. Here's how the 2d DCA explained where the court went wrong and why:

The [trustee]  . . . argues that the trial court erred in ordering that he return to Sondra's guardian ad litem “all of the funds and assets which were turned over to [the appellant] ... plus interest on those funds at the legal rate.” The appellant contends that he “has distributed to Sondra, as beneficiary, all of the income from the assets of the Trust since the assets were ordered returned by Sondra to the Trust, approximately $236,564.48.” The appellant further asserts that in awarding interest on “the entire corpus” to Sondra, the final judgment “fails to give [him] any credit for these payments.” According to the appellant, “[i]t is the current assets of the Trust that should be ordered released to Sondra.”

*     *     *     *     *

The trial court erred in treating the earlier erroneous judgment, which required that the distributed assets be returned to the trust, as though it were a money judgment which had been satisfied and then overturned. The funds that were returned to the trust were not turned over to the appellant to deal with as he pleased but were required to be administered by the appellant in accordance with his duties as a cotrustee. The ongoing administration of the trust necessarily involved circumstances that the trial court's order on review in effect ignores.

Here, the restoration of the status quo ante simply requires that “all remaining trust assets” be distributed by the appellant, in his capacity as trustee, as Sondra had directed pursuant to the provisions of the trust agreement. . . .

We therefore reverse the portion of the final judgment ordering the return of “all the funds and assets which were turned over” to the appellant pursuant to the overturned judgment, “plus interest on those funds at the legal rate.” On remand, the judgment shall be amended consistent with this opinion.

Lesson learned:

Remedies that may make sense in a standard commercial dispute simply don't apply in trust litigation.  The new Florida Trust Code should help future litigants - and courts - avoid making this mistake by listing the remedies for a breach of trust in one place (F.S. 736.1001) and how the resulting damages, if any, should be computed (F.S. 736.1002 and F.S. 736.1003).

Full post as published by Florida Probate Litigation Blog on April 20, 2008 (boomark / email).