Florida Banking May 2022

party in breach of fiduciary duty cases. As a practical matter, neither award against the trustee is likely to occur unless the trustee has engaged in bad faith, egregious or willful behavior warranting sanctions, for example, by stealing trust assets. There is, however, a specific situation where bad faith is not necessary to prohibit a trustee from paying an attorney with trust assets. If the trustee pays an attorney to defend a breach claim after a pleading (i.e., a complaint) has been filed without first providing appropriate notice to the qualified beneficiaries, the trustee must reimburse those fees, with interest, pursuant to section 736.0802(10). In addition, the beneficiary seeking that relief may be awarded fees from the trustee. Compliance with this statute is critical. After a pleading asserting a breach of trust claim is filed, the trustee must give notice to all qualified beneficiaries before paying its attorney to defend the claim. The notice, among other things, must advise the qualified beneficiaries of their right to seek an order prohibiting the use of trust assets to pay the trustees attorneys’ fees. Proper notice will allow the trustee to continue paying its fees from the trust unless and until the complaining beneficiary establishes in a trial-like evidentiary hearing, that there is a reasonable basis to conclude a breach of trust occurred. Even if a reasonable basis is proven, the court can deny the beneficiary’s requested relief for “good cause.” That term is not defined, which allows the trustee to argue, and the court the discretion to identify, other grounds for approving continuing payment from trust assets. If the court orders funds to be returned and prohibits using future trust assets for attorneys’ fees, it must also direct who pays them — the attorney or the trustee. Again, the attorney cannot be ordered to pay the fees without notice and service of process. Conclusion The presumption remains that a trustee is entitled to pay reasonable attorneys’ fees incurred in the administration of the trust without court pre-approval. While the trustee is presumed to be acting in good faith, the payments can be challenged once made. When a court finds a trustee acted beyond its authority or an attorney has been overcompensated, either one may be required to reimburse the trust. Costly litigation can be mitigated by keeping the beneficiaries apprised of attorney compensation, and getting beneficiary consent or court approval when objections are anticipated. Kelly O’Keefe is a shareholder in Stearns Weaver Miller’s Tallahassee office. She represents professional and family member fiduciaries in complex and high stakes estate, probate and trust disputes and litigation. O’Keefe is the vice chair of the Tallahassee Regional Estate Planning Council, and a subcommittee chair for the Florida Probate Rules Committee. She is regularly recognized by The Best Lawyers in America, Florida Trend and Super Lawyers magazines and is AV Preeminent Rated by Martindale-Hubbell. You can reach O’Keefe at kokeefe@stearnsweaver.com.

Trust Banking Continued from page 16

Fortunately for the trustee, the attorneys’ fees incurred during these proceedings will be paid from trust assets unless the court deems those fees unreasonable, and the court can direct from which part of the trust the fees for defending the fee challenge will be paid. §736.0206. If, however, the court finds that the original fee or any portion of the attorneys’ fees incurred during the fee challenge is unreasonable, it can require that the fees be reimbursed and from whom — the trustee or the attorney. The attorney must receive notice and service of process for the proceedings before the court can require it to reimburse any portion of the fee. As a result, in some cases, the trustee may be held individually responsible for reimbursing the entire amount. Trust Administration in Probate Following Settlor’s Death The trustee of a revocable trust may retain an attorney in connection with the administration of the trust during the period beginning with the settlor’s death and ending with distribution. §736.1007. What to pay the attorney can be confusing. The trustee and attorney may agree to set the attorneys’ fee according to section 736.1007(2), and that amount, 75 percent of the compensation schedule for the personal representative’s attorney, is deemed reasonable for ordinary services. Ordinary services are defined in the statute, as are extraordinary services. The attorney can obtain additional compensation for extraordinary services, such as involvement in a trust contest, adversary proceedings, or any litigation involving the trust. While the statutory schedules are deemed reasonable, failure to obtain pre-approval from the beneficiary or the court may, depending on the circumstances, result in litigation. Section 736.1007(6) sets out the procedures for challenging these fees and provides specific factors for the courts to consider, such as the promptness, efficiency and skill of the attorney, the nature and value of the assets, and the complexity of the administration. The trustee and the attorney should review these factors as well as the factors the attorney must disclose to the trustee when setting the fee, including the disclosure that the presumed reasonable statutory fee is not mandatory and may not be appropriate in all trust administrations. To decrease the risk of a fee challenge permitted by section 736.1007(6), the trustee should make similar disclosures to the beneficiaries and obtain their consent to, or court approval of, the fee arrangement. Breach of Trust When facing the prospect of litigation, the trustee should prepare for the worst and hope for the best. If a breach is found, the hope is that the trustee will not be held individually liable for its own fees or those of the beneficiary who filed suit. If the trustee is individually named in the suit, each of those outcomes is possible pursuant to section 736.1004, Florida Statutes, which provides that a court may award fees to a prevailing

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