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Florida trustees may face conflict over bad instructions

For many West Palm Beach readers, regardless of their degree of wealth, smart estate planning may involve the use of one or more different kinds of trusts. One of the most popular forms of trusts is a type of revocable trust often referred to as a living trust. Because the person who creates a revocable trust retains the authority to revoke or amend the trust at any time, that person effectively has the final word over trust administration. In some cases, that can create a conflict when the trust creator is not also appointed as the trustee.

The person who creates a trust is known as the settlor and the person appointed with authority to manage trust assets is known as the trustee. In the most common type of revocable trust arrangement, the settlor also acts as the trustee, so the creator of the trust has both legal and actual authority to manage the trust assets during his lifetime.

In some cases, though, a settlor may want to appoint someone else, such as a child, to manage certain financial assets. Although the trustee has legal authority to manage the trust assets, the trustee has a duty to act in the settlor's best interest. That can cause problems when the settlor instructs the trustee to act in ways that trust beneficiaries oppose.

For example, trust beneficiaries might object to a settlor's instructions to invest in high risk stocks. The trustee may face the question of whether or not he will face any repercussions from the beneficiaries by choosing to follow the settlor's instructions. As a general rule, the trustee owes no duty of loyalty to the beneficiaries and is free to follow the settlor's instructions.

Such a situation may raise the question, however, of whether it is actually in the settlor's best interest to seek a determination of whether or not the settlor is competent to make such important financial decisions and continue managing the trust. Floridians facing such complicated trust questions should be aware that an experienced trust administration attorney can help determine the best options for all parties concerned.

Source: Lake County News, "Estate Planning: May a trustee follow a living settlor's bad instructions?" Dennis Fordham, Dec. 15, 2012

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