Why Does It Matter if an Individual or Charity Is a “Qualified Beneficiary” of a Florida Trust?
When you create a trust, you typically name one or more beneficiaries who are entitled to the trust’s income or principal. Under Florida law, the trustee must subsequently keep any “qualified beneficiaries” of the trust “reasonably informed” of the trust’s administration and activities. For instance, the trustee must provide each qualified beneficiary with a complete copy of the original trust instrument upon request.
Not all qualified beneficiaries are individuals. In some cases, a qualified beneficiary may be a charitable organization. Florida law recognizes charities as qualified beneficiaries when they are “a distributee or permissible distributee of trust income or principal,” or “would be a distributee or permissible distributee … on termination of the interests of other distributees or permissible distributees then receiving or eligible to receive distributions.”
Here is what this language means in practical terms. In a recent Florida appeals court decision, Hadassah v. Melcer, three sisters challenged the designation of a charity as a “qualified beneficiary” under their late mother’s trust. The mother created the trust in 1989. It directed that upon her death, some of the trust’s assets would be placed into a separate trust for the benefit of her husband–and when he died, that trust would then be divided into three smaller trusts, each one benefiting one of the daughters.
Each of the smaller trusts would make regular distributions to the daughters during their lifetime. When each daughter died, however, their trust would then be redistributed to the surviving sisters. And after all three sisters pass away, whatever is left would then be distributed to three designated charitable organizations.
After the parents died, the trustee filed a legal action seeking to resign his position. As part of this lawsuit, he named both the daughters and the three charities as “qualified beneficiaries” of the trust. The daughters objected, arguing the charities were not qualified beneficiaries.
The court agreed with the daughters’ reading of the trust and the law. But one of the charities appealed, leading the Fourth District Court of Appeal to intervene. The appeals court determined the trial judge made a mistake. The trial court assumed the three smaller trusts needed to “terminate” sequentially–i.e. the first daughter’s interest would pass to the second daughter, the second daughter’s interest to the third daughter, and then the third daughter’s interest to the charities. But the law “contemplates the simultaneous termination” of all three trusts, i.e. the “interests of the other distributees.” In other words, if all three daughters somehow die in a common accident, their interests would go directly to the charities. This meant the charities were “qualified beneficiaries” under Florida law.
Speak with a Florida Trust Attorney Today
Trusts are a useful estate planning tool. But they also involve some highly technical legal principles. That is why you should always work with an experienced Fort Myers estate planning attorney when contemplating or developing a trust. Contact the Kuhn Law Firm, P.A., at 239-333-4529 today if you need advice or assistance with any trust or estate planning matter.