Five Questions

>>A parent, guardian or anyone else establishing a trust for their loved ones and survivors expects the trustee to attend those assets with the best interests of their beneficiaries in mind. But that doesn’t always happen and, until recently, the beneficiary of an irrevocable trust had little recourse for poor trust management.

In 2007, a little-known law took effect in Florida enabling beneficiaries to change trustees, which hadn’t been possible except in cases of egregious mismanagement. The new law is bad news for financial institutions that have neglected those beneficiaries, but good news for beneficiaries as well as for competing financial institutions, says Scott Kellett, president of Naples-based Bank of Florida Trust Co.

1. What does the law say, and why is it significant?

The law prior to July 1, 2007, allowed a trustee to be removed only for certain reasons, for example, a serious breach of trust. The Florida Legislature changed the law so beneficiaries could remove the trustee for additional reasons, such as a [financial institution’s] merger resulting in investment-strategy changes. The law affords beneficiaries the opportunity to avail themselves of competition. As a result, financial institutions will have to wake up and realize these folks are clients and treat them accordingly.

2. What was happening before the law passed?

An irrevocable trust beneficiary might call and need money for a purpose that the trust allows, and they weren’t given full and fair consideration. They were almost pooh-poohed. We also see conflicts of interest with financial institutions [investing trust assets into] their own mutual funds, money market funds or proprietary products that might not be in the best interest of the beneficiaries.

3. How might this new law affect a business?