Florida Banking May 2022

TRUST BANKING

WHO PAYS A TRUSTEE’S ATTORNEYS’ FEES?

BY KELLY O’KEEFE, SHAREHOLDER, STEARNS WEAVER MILLER

A t some point during trust administration, a trustee will need legal representation. Florida law recognizes that need and as a general rule allows the trustee to compensate attorneys with trust assets without a court’s pre-approval. §§736.0813(20), 736.0802(10), 736.1007(1). However, courts ultimately maintain discretion to determine whether and what amount of trust assets can be used to compensate the attorney. To discourage beneficiary objections to attorneys’ fees and avoid the tremendous time and expense associated with defending the fees in court, trustees should carefully assess what is a necessary and reasonable fee when retaining an attorney, and throughout the representation. Meticulously monitoring the attorneys’ fees, however, will not prevent all fee challenges. They are inevitable and plentiful, in part, because circumstances requiring the trustee to retain an attorney are numerous and varied. What is an appropriate expenditure of trust assets will differ in each given set of circumstances. While fee disputes must be determined on a case-by case basis, multiple sources provide guidance on when it is appropriate to compensate an attorney with trust assets. The trust itself may provide guidance. Florida’s Trust Code is also instructive and affords some protection to trustees by allowing payment of fees without initial court approval. However, prior to 2008, the Trust Code did not afford that protection where a breach of trust was alleged. The Florida Bankers Association and other organizations saw the devastating impact that had on Florida’s trustees and worked to get legislation passed which allows trustees to retain and pay counsel without court pre-approval in these situations, provided the trustee gives the required notice when a suit for breach of trust is filed. §736.0802(10). While the Trust Code offers the trustee some protection, it cannot stop all fee litigation. Compensating attorneys with trust assets, especially in breach of trust cases, will continue to be the subject of many future court decisions.

Trust Administration The Trust Code specifically recognizes the trustee’s power to hire and pay counsel when administering the trust. This power has some limitations and can be challenged. First, there are notice requirements that the trustee must meet before paying attorneys’ fees to defend a breach of trust claim during the trust administration. Those specific requirements are described below. A conflict of interest also limits this power and you may be surprised at what the courts consider a conflict. In the case of Bronstein v. Bronstein, 332 So. 2d 510 (Fla. 4th DCA 2021), the trustee thought he was pursuing an appeal for a valid unbiased reason — to prevent the beneficiaries from unjustly causing an increase in the amount of attorneys’ fees the trustee incurred. However, the fees for pursuing the appeal were deemed to have only benefited the trustee, who was also a beneficiary, and the appellate fees were assessed against the trustee’s portion of the trust. Cases like this confirm that where the trustee’s individual interests conflict with those of the beneficiary, the trustee should consider obtaining written consent or court approval before paying attorneys’ fees with trust assets. If the conflict can be viewed as self-dealing, the trustee should consider hiring an attorney at its own expense to represent it in the conflicting transaction. Objections challenging the need for an attorney’s services and the amount paid are also common. In such challenges, it is the trustee’s burden to demonstrate that the compensation was reasonably necessary, was incurred for the benefit of the trust, and was a reasonable amount. To determine the necessity of the fee, the court will look at whether the liability was incurred in good faith, and whether a reasonably prudent person would have incurred the expense. The factors courts examine in determining whether the fee amount is reasonable are too numerous to cover here.

Trust Banking Continued on page 18

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