PROBATE CORNER
PROBATE CORNER
Fiduciary’ s Exit Strategy
DAVID M. GARTEN
Notice of resignation or removal is only the beginning! You need to consider a reserve to pay for future administration expenses, attorney’ s fees and costs pending final discharge.
A trustee that has resigned or been removed possesses a statutory and common-law right to withhold a reasonable reserve from the trust for payment of debts, expenses, and taxes. The reserve is backed by a lien on the trust assets. § 736.0707, F. S.; First Union Nat ' l Bank v. Jones, 768 So. 2d 1213( Fla. 4th DCA 2000). The trusteeship and accompanying fiduciary duties end when the trust property is delivered to the successor trustee. Until property is transferred to a successor trustee, a trustee that has resigned or been removed retains“ the duties of a trustee and the powers necessary to protect the trust property." § 736.0707( 1), F. S. The trustee must continue to exercise discretionary powers " in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries." § 736.0814( 1), F. S.
In contrast, a personal representative that has resigned or been removed may only retain a reserve with court approval and has no lien rights. Fla. Prob. R. 5.430. Pending an order of discharge, the resigning / removed personal representative must continue to observe the standards of care applicable to a trustee. § 733.602( 1), F. S.
Although a trustee that has resigned or been removed has the discretion to determine the amount of the retainer, the amount must be reasonable given the facts and circumstances at issue. For example, in Mastriana v. Brown Bros. Harriman Trust Co., N. A., 410 So. 3d 1223( Fla. 4th DCA 2025), Brown Brothers was removed as trustee and was subsequently sued by the successor trustee. Count I of the complaint sought a declaration and determination that Brown Brothers breached its fiduciary duties by retaining an excessive and unreasonable reserve of $ 8.9 Million. And Count II of the complaint sought a surcharge against Brown Brothers for imprudently investing the funds held as a reserve and to disgorge any fees charged by Brown Brothers for its services as trustee since its removal as trustee.
In response to the claim for breach of fiduciary duty, Judge Gillespie concluded that“[ b ] ased on the evidence adduced at trial, the Court finds that the Defendant was permitted to hold a reasonable reserve upon its removal. The Defendant based its reserve amount( within its discretion) upon potential litigation, completion of accountings, and objections thereto. While the Defendant did not use a formula to determine the amount of reserve, Defendant provided evidence that holding a reserve of 10 % was its standard practice, and in fact, both the Defendant and the Plaintiff agreed Defendant only withheld a reserve that amounted to approximately 7.98 % of the total trust account funds. Accordingly, the Defendant ' s discretionary decision regarding the amount of reserve " held back " was reasonable, not arbitrary, and was not made in bad faith.”
In response to the claim for imprudent investment, Judge Gillespie concluded that Brown Brothers“ prudently invested the reserve amount in light of the circumstances of this case. The reserved funds were held fixed income investments and cash, so that any debts, expenses, and taxes could be paid without delay.” The Final Judgment in favor of Brown Brothers was affirmed on appeal.
Judge Gillespie’ s Final Judgment, dated 3 / 13 / 24, is located in In Re: Trust of James M. Salah, Case No: PRC170005718, Broward County, FL.
PRACTITIONER’ S CORNER:
Don’ t get caught in the“ reserve” trap! Will the successor fiduciary agree to your client’ s discharge? If not, will he / she at least stipulate to the following:( a) the amount of the reserve;( b) a limitation on
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your client’ s duties and responsibilities pending discharge;( c) a list of the pending legal and factual issues in dispute; and / or( d) a list of pending taxes and administration expenses. In addition, will the successor personal representative waive the Petition for Discharge and a final accounting [ Fla. Prob. R. 5.430( g)]? You will need this information to support the amount of the reserve.
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