Trustee Sued Over a Bad Investment? Start With the Key Facts

Short Answer: Can a Florida Trustee Be Sued Over an Investment That Lost Money?

Yes, a trustee can be sued in Florida over how a trust investment was handled. A drop in value alone does not decide the case. The core question is whether the trustee acted prudently, judged by the facts known when the decision was made.

People searching for trustee sued bad investment Florida often hold a statement that shows a loss. They want to know whether the loss means the trustee did something wrong. It may not. Florida law looks at conduct and process, not just the result.

This page provides general information about trust disputes in Florida. Leslie V. Marenco is the responsible lawyer for this page. The firm advises and represents trustees, personal representatives and beneficiaries. Its only office is in Coral Gables, Florida. We serve clients in Fort Lauderdale too. You can read more on the trust litigation page or the Fort Lauderdale trust litigation page.

The Florida Standard: Prudent Administration and Prudent Investing

Florida’s prudent investor test asks whether the trustee invested and managed investment assets as a prudent investor would, considering the purposes, terms, distribution requirements, and other circumstances of the trust. Under Fla. Stat. § 736.0804, a trustee must administer the trust that way. The trustee considers the trust’s purposes, terms, distribution requirements and other circumstances. The trustee must also exercise reasonable care, skill and caution.

For investments, Fla. Stat. § 736.0901 says a trustee invests trust property under chapter 518. Each decision is viewed as part of the whole portfolio and an overall strategy. That strategy should fit the trust’s risk and return goals.

If a trustee has special skills, or was chosen because of claimed skills, the trustee must use those skills. That duty also comes from section 518.11.

Two other duties run alongside investing. The duty of loyalty requires a trustee to act solely in the beneficiaries’ interests, under Fla. Stat. § 736.0802. The duty of impartiality applies when a trust has two or more beneficiaries, under Fla. Stat. § 736.0803.

Why a Loss Alone Does Not Establish Liability

A loss by itself does not prove a breach, because the rule tests conduct, not results. Section 518.11 says no specific investment is, taken alone, prudent or imprudent. It also says the prudent investor rule “is a test of conduct and not of resulting performance.”

Markets fall. A careful portfolio can still lose value in a downturn. The decision is judged by the trustee’s reasonable business judgment, using the facts at the time. Hindsight is not the test.

Courts usually look at process. Did the trustee research the investment? Did the trustee write down the reasons? Did the trustee seek advice? Did the investment fit the trust’s purposes and the beneficiaries’ needs? Did the trustee review the holdings over time?

Records carry much of the weight. Investment minutes, account statements, advisor letters and review notes show what the trustee knew. Gaps in those records make the process harder to show. The statute also lists factors a trustee may consider, such as general economic conditions and expected tax consequences.

Claims Beneficiaries Commonly Raise About Trust Investments

Beneficiaries usually raise claims about concentration, risk, conflicts, monitoring and reporting.

Concentration and risk. Putting most of a trust into one holding or one sector can be challenged. The question is whether the trustee judged risk across the whole portfolio. Speculative investments that do not match the trust’s purpose draw the same challenge.

Self-dealing. An investment tied to the trustee’s own interests raises a loyalty issue. Under Fla. Stat. § 736.0802, a transaction affected by a conflict is voidable by an affected beneficiary. Exceptions apply, such as when the trust terms authorize the transaction.

Failure to monitor. A trustee must review inherited investments within a reasonable time. The trustee then decides whether to keep or sell them, under section 518.11.

Under Fla. Stat. § 736.0813, a trustee of an irrevocable trust must give accountings to each qualified beneficiary at least annually and on termination of the trust or on change of the trustee, unless the trustee is a family trust company, licensed family trust company, or foreign licensed family trust company, in which case the trust terms may limit accounting to termination, removal or resignation, or a beneficiary’s demand. On reasonable request, the trustee must also provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration.

Sales, Valuation and Missing Assets: Where Investment Claims Overlap

Missing assets can support a claim that the trustee failed to account. Beneficiaries often do not know what the trust held or what it was worth. That makes the trustee’s inventory and valuation records central.

An appraised price is one fact. It does not end the inquiry. A court can also look at how the sale was run, when it happened, who bought the asset, and whether the trustee had a personal interest. Those points connect to the duty of loyalty. A beneficiary can ask for relevant information about assets under § 736.0813.

The paperwork shows the process. Records of the offers considered and the reasons for accepting one give a court something to review.

Common Defenses Trustees Raise Against Beneficiary Claims

Trustees usually rely on the trust terms, the beneficiary’s consent, advisor input, timing and how the loss is measured. Each defense has limits. How far one reaches depends on the facts of the trust and the records.

Trust terms. The trust may authorize the investment or give the trustee broad discretion. Under section 736.0804, a trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.

Under Fla. Stat. § 736.1012, a trustee is not liable to a beneficiary for breach of trust if the beneficiary consented, released the trustee, or ratified the transaction. That protection fails if the consent was induced by the trustee’s improper conduct. It also fails if, at the time of the consent, release, or ratification, the beneficiary did not know their rights or the material facts relating to the breach.

What the adviser was told and what the trustee did next both matter.

Trustees often dispute that figure.

How a Beneficiary Raises a Claim and What the Law Allows

A beneficiary usually starts by asking for the trust documents, accountings and investment records. A claim then goes to court. Fla. Stat. § 736.1001 provides that a trustee’s violation of a duty the trustee owes to a beneficiary is a breach of trust. The court may order the trustee to pay money or restore property. It may also order an accounting, suspend the trustee, remove the trustee, or reduce or deny compensation.

Under § 736.1002(1), a trustee who commits a breach of trust is liable for the greater of the amount required to restore the trust property and trust distributions to what they would have been if the breach had not occurred, including lost income, capital gain, or appreciation that would have resulted from proper administration, or the profit the trustee made by reason of the breach. The trustee is liable for the greater of the amount needed to restore the trust, or the profit the trustee made from the breach.

Deadlines matter. Fla. Stat. § 736.1008 provides that, subject to an exception the statute sets out, a beneficiary’s claims against a trustee for breach of trust are barred as provided in chapter 95 as to all matters adequately disclosed in a trust disclosure document issued by the trustee or a trust director, and the limitations period begins on the date the beneficiary receives adequate disclosure. The period starts when adequate disclosure is received. A limitation notice may warn that an action can be barred unless it is filed within 6 months after receipt of the disclosure or the notice, whichever is later. Some matters may be referred to another lawyer or firm.

Can a trust document protect a trustee from every claim?

If a Trust Investment Lost Money and You Have Questions

If you can’t tell whether a trust investment was handled properly, a first conversation can help you sort out the documents and timing. Picture a beneficiary who received a statement showing a large drop in a trust account. That person cannot tell whether the trustee did anything wrong. Or picture a co-trustee worried about a decision made years ago.

Trust Counsel, PL can review the trust documents, investment records and timing with you. The first consultation is free, confidential and without obligation to continue. Call (305) 707-7126 or schedule online. The firm’s only office is in Coral Gables, Florida.