Miller v. Kresser, 2010 Fla. App Lexis 6152 (Fla. 4th DCA 2010)

In April of 2004, a mother created a spendthrift trust for the benefit of her son and transferred several valuable properties to the trust.  She named another son as the trustee of the trust and gave him discretion to distribute the entire corpus to the beneficiary at any time.  On June 21, 2007, a plaintiff obtained a judgment against the beneficiary for over $1,000,000.  The plaintiff was unable to collect anything from the beneficiary, so he sued the brother who was the trustee of the trust claiming that the trust was invalid because the beneficiary had exerted significant control over the trust and substantial influence over his brother the trustee. The trial court found that the beneficiary had transferred over $168,000 from the trust to his own law practice.  The beneficiary had treated these as loans and but the trustee was unaware that they were loans and had no copy of the promissory notes.  The trial court found that the beneficiary seemed to exercise all authority over the important decisions relating to the trust, including investment decisions, and the beneficiary kept possession and control of the trust checkbook.  When the beneficiary requested that his brother form an LLC and execute a note and mortgage for $1,400,000, the brother did so without any investigation or independent analysis.  The trial court found that the trustee had limited knowledge of the trust assets and was merely a puppet of the beneficiary who “rubber-stamped” the decisions of the beneficiary. Although the trial court determined that the spendthrift provision was valid when created, they found that the spendthrift provision and discretionary aspects of the trust were invalid because of the degree of control that the beneficiary exercised over the trust and his brother the trustee.  For these reasons, the trial court held that the trust could be pierced to satisfy the plaintiff’s judgment. The Florida 4^th District Court of Appeals overturned the ruling of the trial court and upheld the creditor protection provided by this discretionary spendthrift trust.  The appellate court found that even though “the facts in this case are perhaps the most egregious example of a trustee abdicating his responsibilities . . . the law requires that the focus must be on the terms of the trust . . . and the trust did not give [the beneficiary] any authority whatsoever to manage or distribute trust property.” This case shows that the good old-fashioned asset protection provided by a spendthrift trust continues to be upheld by the courts, even in many cases where the trust is grossly mismanaged.  The asset protection provided by a trust can be strengthened by appointing an independent trustee and by ensuring that the trustee understands and fulfills the responsibilities of the trustee.  Spendthrift protection is even greater when the trust is designed as a discretionary trust, and when the trust is supported by a state statute that provides that a beneficial interest is not a property right and that the discretion of a trustee is "absolute."