Full Disclosure: The Unexpected Ambits and Annals of the Adequate Disclosure Doctrine.

Author:Duffey, Patrick J.
Position:Real Property, Probate and Trust Law

Florida, like other Uniform Trust Code states, has made a clear public-policy determination in favor of transparency in the administration of trusts. From inception, trustees must notify and regularly report to current and future beneficiaries. Those extensive duties to beneficiaries are balanced by somewhat less expansive protections for the trustees that perform them. One such protection, the statute of limitations for breach of trust claims is, in fact, directly tied to the trustee reporting obligations.

The limitations period, which ranges in Florida from four years to six months, however, applies only to those matters that are "adequately disclosed" to trust beneficiaries in a trust disclosure document. (1) While the statute includes a somewhat vague definition of the term, there is very little caselaw to guide a trustee in determining whether matters reported in its trust statements are "adequately disclosed" to beneficiaries. Recently, a Florida appellate court adopted a surprisingly narrow interpretation of "adequate disclosure" in a case of first impression that could exercise outsized influence with courts in Florida and beyond.

Florida Trustee Limitation Periods

Claims of breach by beneficiaries against trustees are time-barred in just a few, limited circumstances, which are enumerated by statute. (2) That statute (limitations statute) is structured into three distinct prongs along with a separate statute of repose:

1) Standard Limitations Period: A four-year limitations period (3) applies if the trustee has "adequately disclosed" a matter in a "trust disclosure document" or, absent adequate disclosure of that particular matter, if the trustee has provided the beneficiary with a) a final accounting and b) a statutory notice. (4) The standard limitations period runs on the beneficiary's receipt of the trust disclosure document in the former instance or the beneficiary's receipt of the final accounting and statutory notice in the latter instance. (5)

2) Abbreviated Limitations Period: A six-month limitations period applies if the trustee has "adequately disclosed" a matter in a "trust disclosure document" and provided a statutorily prescribed notice of the application of the abbreviated limitations period. (6) The abbreviated limitations period runs on the beneficiary's receipt of the later of the trust disclosure document or the statutory notice. (7)

3) Extended Limitations Period: A four-year limitations period (8) applies if the trustee has not provided the accounting and notice required for application of the standard limitations period. Unlike the standard limitations provision, the extended limitations period is tolled, however, until the trustee can establish the beneficiary had "actual knowledge" of the facts underlying the claim under a clear and convincing evidentiary standard. (9)

4) Statute of Repose: A somewhat awkwardly structured, multi-part statute of repose applies to all beneficiary claims, regardless of the disclosures provided by the trustee. So long as the beneficiary had knowledge of a) the existence of the trust, and b) their status as a beneficiary, claims by the beneficiary against the trustee are barred upon the later of: 1) 10 years after the date the trust terminates or the trustee resigns, or 2) 20 years after the date of the act or omission at issue. (10) A true "statute of repose" applies beginning 40 years after the termination of the trust or the resignation of the trustee. (11) Those time periods can be extended by 30 years, however, if a beneficiary can prove that the trustee "actively concealed" relevant facts by a clear and convincing evidentiary standard.

The limitations statute draws from a similarly worded--but not nearly as complex--provision of the Uniform Trust Code (UTC) [section]1005. The UTC provides for a one-year limitations period if the trustee provided the beneficiary with a "report" that "adequately disclosed the existence of a potential claim for breach of trust" along with notice of the applicable limitations period. (12) The statute of repose in the UTC is only five years and begins on the earlier of 1) the removal, resignation, or death of the trustee; 2) the termination of the beneficiary's interest in the trust; or 3) the termination of the trust. (13)

The various limitations periods can be thought of as comprising a number of distinct elements, each of which presents a unique evidentiary burden of proof. Under the limitations statute, a "trust disclosure document" is broadly defined as a formal trust accounting (14) or "any written report of the trustee." (15) A beneficiary's receipt of a trust disclosure document can be proved with relative ease using either certified mail or electronic delivery. The contents of the statutory notices required under the limitations statute are clearly set out in the provisions of the statute and can be easily incorporated into the relevant disclosure documents. For Florida trustees looking prospectively to limit their liability, then, the key is whether matters have been "adequately disclosed" within the meaning of the limitations statute. The question of adequate disclosure was examined for the first time in Florida in a recent case out of the Third District Court of Appeal.

Turkish v. Brody

Turkish v. Brody, 221 So. 3d 1206 (Fla. 3d DCA 2016), involved the estate and trusts of Ada Turkish Trask. The primary subject of the litigation was the Ada Turkish Trask 2005 Trust Number One (the trust). (16) Ms. Trask was survived by her son, Arthur, her daughter, Carol, another unnamed child, and Arthur's daughter, Shari. Arthur and Shari were co-trustees of the trust, while Arthur and Carole were the current beneficiaries. (17) The co-trustees had "absolute discretion" to make distributions from the trust principal to the beneficiaries during Ms. Trask's lifetime "in equal or unequal amounts and to either one of them to the exclusion of the other." (18)

The year after Ms. Trask funded the trust, she voluntarily disclosed to the Internal Revenue Service (IRS) that she owed more than $3 million in outstanding gift taxes. (19) Subsequently, Ms. Trask and the IRS settled for $1,022,500, which was paid using funds distributed to Arthur from the trust. (20) In exchange, Ms. Trask executed an unsecured promissory note in the same amount to Arthur (the note). (21)

In July 2008, Carole objected to the distribution, alleging that it improperly favored Arthur over her. (22) A little over a year later, Carole and the co-trustees entered into a settlement agreement (which the court found "accurately reflect[ed] the [contested] transaction and Carole's objections" thereto) under which Arthur was to contribute the note to the trust in exchange for a full release of himself and his co-trustee. Carole received a number of trust accountings throughout this period. In August 2009, she received an accounting covering 2005 through 2007, which included the appropriate statutory six-month limitations notice. (23) In July 2010, Carole received a trust accounting for 2008, which also included the appropriate statutory six-month limitations notice. Finally, in October 2011, Carole received a trust accounting covering 2009 and part of 2010. (24)

In April 2011, Carole filed a breach of fiduciary duty claim against Arthur and Shari and, inter alia, contested the distribution of $1,022,500 to Arthur for the IRS liability payment. (25) In response, the...

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