## Facts

- A will created a testamentary trust for David Wilson, requiring distribution of net income to him and permitting discretionary principal invasions for his support; any remaining principal at his death would pass to his sisters, Joann Harrell and Barbara Dake.
- The trust’s principal asset was the decedent’s residence.
- After family disputes, David petitioned to replace the initial trustee; Charles F. Badger was appointed successor trustee.
- Badger obtained legal advice and entered a joinder agreement with a pooled special-needs trust, transferring all trust assets into a sub-account for David.
- The joinder agreement provided that remaining funds at David’s death would be retained by the pooled trust for other beneficiaries, effectively eliminating Harrell’s and Dake’s remainder interests.
- Badger petitioned for court permission to hire his wife as realtor to sell the residence, but no order granting the request was entered.
- Badger nonetheless used his wife to sell the residence, paid her a 5% commission, and transferred the proceeds into the pooled trust sub-account.
- Harrell and Dake were not notified of the sale or the transfer; they learned of it when Badger later sought to terminate the original trust.
- Trust funds in the pooled trust structure were later misappropriated by third parties associated with administration of that pooled trust.
- Harrell and Dake counterpetitioned, alleging breach of trust based on lack of notice, self-interested transactions involving the spouse’s commission, and the transfer that extinguished their remainder interests.

## Issues

1. Whether the trustee’s discretionary authority to invade principal for the current beneficiary permitted transferring all assets to a pooled special-needs trust on terms eliminating remainder beneficiaries’ interests.
2. Whether the trustee breached fiduciary duties (including loyalty, impartiality, and duties owed to remainder beneficiaries) by transferring assets without notice and by employing and compensating his spouse without effective court authorization.
3. Whether good-faith reliance on counsel barred or excused liability for alleged breaches of trust.
4. Whether awarding the trustee attorney’s fees from trust assets was proper.

## Decision

- The appellate court reversed the judgment for the trustee and remanded for further proceedings.
- The court rejected the trial court’s reading of the trust as authorizing principal invasion to any extent the trustee deemed beneficial when used to eliminate the settlor’s remainder-beneficiary scheme.
- The court held the trustee’s transfer into the pooled special-needs trust, on terms cutting off Harrell’s and Dake’s remainder interests, was not authorized as approved by the trial court.
- The court reversed the attorney’s fee award to the trustee as an abuse of discretion and inequitable under the circumstances.

## Legal Principles

- A trustee’s discretionary power to distribute or invade principal for a current beneficiary does not, without more, authorize altering the trust’s dispositive plan by extinguishing remainder beneficiaries.
- “Decanting” or distributing trust assets into a new trust arrangement must comply with governing law and cannot be used to defeat beneficiaries’ interests contrary to the settlor’s plan.
- Trustees owe fiduciary duties to remainder beneficiaries as beneficiaries, including duties of loyalty and impartiality, and must account for their interests when administering the trust.
- Transactions involving related parties (such as employing and compensating a trustee’s spouse in connection with trust property) trigger heightened scrutiny and require strict compliance with required safeguards.
- Reliance on counsel may be relevant to good faith but is not a complete defense to actions exceeding the trustee’s authority or violating fiduciary duties.
- Attorney’s fees charged to a trust may be denied or reversed when the equities weigh against compensating a trustee for litigation arising from contested administration.

## Conclusion

The court held that a trustee’s broad discretion to support a current beneficiary did not permit transferring trust assets into a special-needs arrangement that eliminated remainder beneficiaries, and it reversed both the judgment approving the trustee’s conduct and the trustee’s fee award, remanding for further proceedings on the beneficiaries’ claims.


Harrell v. Badger, 171 So. 3d 764 (Fla. Dist. Ct. App. 2015)