This year’s Florida Legislature approved two new laws governing the administration of Florida trusts. These amendments became effective July 1, 2008. An overview of these amendments is as follows:

Directed Trustees: A person may create a trust or amend his or her existing trust to provide for the appointment of more than one trustee, but confer upon one or more of the trustees, to the exclusion of the other trustee or trustees, the power to direct or prevent specified actions. Except in cases where the excluded trustee has actual knowledge of willful misconduct on the part of the directed trustee, an excluded trustee is not liable, individually or as a fiduciary, for any consequence that results from the directed trustee’s compliance with the exercise of that power, regardless of information available to the excluded trustee. The excluded trustees are relieved of any obligation to review, inquire, investigate, or make recommendations or evaluations with respect to the exercise of the power. The trustee or trustees having the power to direct or prevent actions of the trustees shall be liable to the beneficiaries with respect to the exercise of the power as if the excluded trustee were not in office and shall have the exclusive obligation to account to and defend any action brought by the beneficiaries with respect to the exercise of that power.

Attorney Fees from Trusts: Until now, a trustee who was accused in a court pleading of breaching the terms of the trust could not use trust funds to defend the action without first obtaining court approval. Circuit judges were reluctant to grant this approval before first hearing the merits of the case at a trial. Thus, a trustee had to expend his or her personal funds and not use trust funds to defend an action alleging his or her breach of the terms of a trust. Only after a judgment was entered finding that the trustee did not breach the terms of the trust could the trustee then obtain reimbursement for his or her attorney’s fees for defending the action. The new statute provides that if a claim is based upon a breach of trust against a trustee in a court proceeding, the trustee must simply provide written notice to each qualified beneficiary of the trust whose share of the trust may be affected by payment of these attorney’s fees and costs. The notice will advise of the intention to pay the attorney’s fees and costs incurred in the proceeding from the trust. The notice is to further advise the beneficiary of the right to apply to the court for an order prohibiting the trustee from paying attorney’s fees or costs from the trust assets. A beneficiary must then obtain a court order prohibiting the trustee from paying the attorney’s fees or costs from the trust. To obtain an order prohibiting payment of attorney’s fees or costs from the trust assets, a beneficiary must make a reasonable showing by evidence that provides a reasonable basis for the court to conclude there has been a breach of trust. If the court finds there is a reasonable basis to conclude there has been a breach of trust, the court may enter an order prohibiting the payment of attorney’s fees or costs fromthe assets of the trust and may order any attorney’s fees or costs previously paid from trust assets for the defense of the claim to be refunded. Nothing in the new statute limits the power of the court to review paid attorney’s fees and costs or the right of any beneficiary to challenge fees and costs after payment pursuant to a subsequent accounting or at the conclusion of the litigation.

Mediation and Arbitration

A new trust provision that was approved in 2007, states that person having an interest in a trust may enter into a binding non-judicial settlement agreement with respect to any matter involving a trust. Thus, a grantor of a trust could include in the trust agreement a provision that any dispute regarding the interpretation or administration of the trust agreement should be submitted to the process of mediation and arbitration. This will save the trustee and the beneficiaries the cost and delay of court proceedings and promote a prompt and final resolution of the dispute.

Disability Planning Often Requires the Revision of Estate Plans

The on-set of a spouse’s dementia will give rise to considering a new estate and disability plan for both spouses. At a minimum, a new Durable Power of Attorney, Health Care Advanced Directive and Preneed Guardian Designation should be signed by the well spouse substituting an adult child as his or her agent rather than the incapacitated spouse. Consideration should also be given as to whether the well spouse should amend his or her estate plan to devise to the incapacitated spouse only 30% of his or her assets in a special needs trust. The remaining 70% of the estate assets of the first to die could be devised to the children. The Florida law states that a spouse must leave the surviving spouse at least 30% of all of his or her assets. The Florida law does not require that the surviving spouse receive all of the deceased spouse’s assets. In addition, the Florida Statutes permit the circuit judge to approve these assets devised to the incapacitated spouse being held in a Special Needs Trust for the special needs of the incapacitated spouse. This permits the incapacitated spouse’s inheritance to only be expended to the extent that Federal or State assistance is not available. The unused balance in this special needs trust will be paid to the children at the death of the incapacitated spouse. Of course, there is no substitute for a long-term care policy if it can be purchased before a spouse becomes incapacitated.

Waiving An Inheritance Will Disqualify A Person For Medicaid

A Georgia appeals court recently ruled that the state Medicaid agency properly imposed a penalty period on a Medicaid applicant who had turned down her inheritance from her husband’s estate within the three-year look-back period. In May, 2003, about six months following her husband’s death, Gracie Medders filed a renunciation and disclaimer of the inheritance she was to receive from her husband’s estate. Less than three years later, Mrs. Medders entered a nursing home and applied for Medicaid. The Georgia Department of Community Health (DCH) assessed a penalty period for an improper transfer of assets because Mrs. Medders declined her inheritance during the three years prior to her application. After an administrative law judge (ALJ) upheld DCH’s decision, Mrs. Medders appealed. A trial court reversed the ALJ’s decision, finding that Mrs. Medders’ refusal of her inheritance was not a transfer since she never actually received her husband’s assets. The court further found that even if she had renounced the inheritance, the renunciation would relate back to the date of Mrs. Medders’ husband’s death, not the date of the actual renunciation. Since Mrs. Medders’ husband died prior to the Medicaid look-back period, the court found that the renunciation should not count as a disqualifying transfer. DCH appealed the trial court’s decision, arguing that it contravened state and federal Medicaid law. The Court of Appeals of Georgia, Second Division, reversed the trial court. The appeal court found that the disclaimer of an inheritance qualifies as a transfer of assets because the person executing the disclaimer is entitled to the inheritance, regardless of whether she actually comes into physical possession of it. Furthermore, the court found that for purposes of determining the succession of interests during the probate process “the effect of the renunciation relates back to the date of death. The fact remained, however, that Ms. Medders filed the renunciation in May 2003. The court stated that nothing in the [Georgia Medicaid law] requires DCH to ignore this date in applying its transfer-of-resources policies.” This case is cited as Georgia Department of Health v. Medders (Ga. App., No. A08A0067, July 3, 2008).

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