Attorney Fees in Trust Litigation

Attorneys fees of a trustee defending a breach of trust action are not automatically permitted to be paid from trust assets.

Generally, in a non-breach case, Florida law permits a trustee to use trust assets to pay attorneys’ fees and costs incurred in connection with trust administration without a court order.  Because a court order is not required under these circumstances, a trustee is empowered to pay its legal fees without either (i) permission from trust beneficiaries; or even (ii) notice to the beneficiaries.

Fla. Stat. 736.1007(1) is one such statute on this point and states in pertinent part:

(1)     If the trustee of a revocable trust retains an attorney to render legal services in connection with the initial administration of the trust, the attorney is entitled to reasonable compensation for those legal services, payable from the assets of the trust without court order.

Fla. Stat. 736.0802(10) extends this doctrine to court proceedings:

(10)   Payment of costs or attorney’s fees incurred in any proceeding from the assets of the trust may be made by the trustee without the approval of any person and without court authorization, unless the court orders otherwise as provided in paragraph (b).

A Trustee Defending A Breach Action Needs To Provide Notice To Beneficiaries Of Intent To Use Trust Assets For Attorney’s Fees

A trustee’s entitlement to pay legal fees from trust assets is not without limitation, however.  Where allegations involving breach of trust are brought against the trustee, the trustee may need a court order should he or she wish to continue paying attorneys’ fees with trust assets.

Fla. Stat. §736.0802(10)(a) explains the procedure that a trustee accused of breach of trust must follow if he or she intends to use trust assets—and not personal assets—in defending a breach of trust action.

Specifically, prior to paying any fees incurred in defending the claim, the trustee must notify all qualified beneficiaries in writing that the trustee intends to pay its legal defense using trust assets.  The notice must further inform the beneficiaries of their right to seek a court order prohibiting the trustee from using trust assets to pay attorneys’ fees.  This notice must be sent by some means requiring a signed receipt from the addressee or as provided in the Florida Rules of Civil Procedure for service of process.  See Fla. Stat. §736.0802(10)(a).

A beneficiary who objects to such use of trust assets in a breach of trust proceeding must obtain a court order prohibiting the trustee from using trust assets to pay the costs of his or her legal defense.  Fla. Stat. § 736.0802(10)(b).  For this order to issue, the beneficiary must present evidence sufficient to provide a basis upon which the court can conclude there has been a breach of trust.  Id.  Upon such a showing, and absent good cause, the court is required to enter an order (i) prohibiting the payment of further attorney’s fees and costs from the assets of the trust; and (ii) requiring that all attorney’s fees or costs previously paid from assets of the trust be refunded.

What If a Trustee Pays Attorney’s Fees From Trust Assets Without A Court Order?

Because attorneys’ fees incurred in adversarial matters can be substantial, it is imperative that a trustee be aware of this procedure and strictly follow it.  Substantial penalties—including an action for surcharge (read about one here), sanctions, a court-ordered refund—are all available remedies against trustees who do not adhere to this required protocol.  Even without a breach claim, trustee fees are subject to review if challenged by an interested person.  Read about more trustee fees and costs disputes here and here.

A claim for attorney’s fees must be properly pled. Regardless of whether the claim is based on statute or contract, failure to plead a claim for attorney’s fees constitutes a waiver of the claim. In order to satisfy this pleading requirement for an entitlement to attorney’s fees, the pleading must occur in a pleading contemplated by the Florida Rule of Civil Procedure 1.100(a). 

In Nathanson v. Morelli (Fla. 4th DCA July 8, 2015), the Court held that a party must plead an entitlement to attorney’s fees in a civil action, there a trust contest.  In this trust contest, plaintiffs filed a complaint regarding trust assets.  Defendant moved to dismiss and requested attorney’s fees.  The motion to dismiss was not set for hearing and discovery proceeded. No answer was ever filed by the defendant.  Ultimately, the parties filed cross-motions for summary judgment.  Defendant prevailed on his summary judgment motion, which requested fees. 

Defendant then filed a motion for attorney’s fees which was met with a motion to dismiss/strike by the plaintiffs.  The trial court denied the defendant’s motion for attorney’s fees finding that he had failed to file a “pleading” containing a request for fees precluded him from entitlement.

The Court reiterated the above requirements that a failure to plead such an entitlement constituted a waiver.  Two main exceptions to this rule exist.

The first exception to the pleading requirement is where a party has notice that an opponent claims entitlement to attorney’s fees and either, by its conduct, acquiesces, ratifies or fails to object to the failure to plead entitlement.  In that case, the party who failed to object waives the opportunity to do so.

The second exception is for cases that are dismissed prior to filing an answer.  A claim for attorney’s fees by a defendant is made in the defendant’s motion to dismiss or by a separate motion which must be filed within thirty days following dismissal of the action.  When a claim for attorney’s fees is not made within this time period the claim is waived.

Here, the Fourth District found that both exceptions were applicable.  As an initial matter, the defendant/Appellant, made multiple requests for attorneys’ fees in multiple filings.  These multiple requests were never objected to by the plaintiffs, in turn waiving the opportunity to object.  In addition, defendant’s motion to dismiss had not been heard and remained pending at the time summary judgment was entered in his favor.  Therefore, the Fourth District held that defendant/Appellant raised his claim for fees while “the time period to answer the complaint ha[d] not yet matured.” (quoting Green v. Sun Harbor Homeowners’ Ass’n, 730 So. 2d 1261, 1261 (Fla. 1998). 

The Court reverses the lower court’s order striking defendant’s motion for fees and remanded the case.  It was error to find that defendant had waived his claim for an award for attorney’s fees.  It was clear from this decision, that the defendant’s motion to dismiss the trust contest, his motion for summary judgment, and what amounted to several other pleadings in the underlying action satisfied the pleading requirement for an entitlement to an award of attorney’s fees.