Trustee Lost Money Investing Trust Funds? Learn How Florida Law Looks at the Loss

Short Answer: A Loss Alone Does Not Prove a Breach

Yes, a beneficiary can sue a trustee in Florida over mismanaged investments. But a drop in value does not prove the trustee did anything wrong. The claim turns on how the trustee made and monitored decisions. Florida’s prudent investor statute says the rule “is a test of conduct and not of resulting performance.”

Markets fall even when a careful trustee manages money well. So a court looks at the process behind the loss, not only the loss itself. A trustee who researched, documented decisions and reviewed the portfolio stands in a very different position from one who ignored the account.

This page covers the questions that usually decide liability. It also covers the trustee’s common defenses, how damages are measured and the deadlines that can end a claim.

The Florida Prudent Investor Standard

Florida requires a trustee to invest trust property as a prudent investor would. The trust code says so directly: a trustee invests trust property under chapter 518. The general duty to administer the trust is in § 736.0804. A trustee must act as a prudent person would and “exercise reasonable care, skill, and caution.”

Under § 518.11, “No specific investment or course of action is, taken alone, prudent or imprudent.” The fiduciary weighs the trust’s purposes, its terms, and when money must go out for distributions.

The trust document comes first. The governing instrument can expand, restrict or change the investment rules. A fiduciary is not liable for reasonable reliance on those express provisions. So the trust instrument is the first document to read.

Questions That Decide Liability

A court usually works through a few questions about the trustee’s conduct. The answers depend on the facts and the records, so paperwork matters as much as the result.

First, did the trustee review the portfolio? The statute requires a fiduciary to review investments within a reasonable time after accepting the trust. The fiduciary must then decide whether to keep or sell original holdings (§ 518.11).

Second, how does each holding fit the whole? A large position needs a reason tied to the trust’s goals. The law lists the role each investment plays in the overall portfolio as a factor.

Third, were costs reasonable? A fiduciary must incur only reasonable and appropriate costs. Expected tax consequences are also a factor the law allows a fiduciary to weigh.

Fourth, was there a conflict of interest? A trustee must act “solely in the interests of the beneficiaries.” A deal affected by the trustee’s personal interests can be voidable by an affected beneficiary, unless an exception applies (§ 736.0802).

Fifth, with two or more beneficiaries, did the trustee act impartially? The trustee must give due regard to each beneficiary’s respective interests (§ 736.0803).

Common Trustee Mistakes When Investing Trust Funds

Most investment problems follow a few patterns. The first is putting a large share of trust money into one stock, private venture or family business. A concentrated bet is hard to defend without written reasons.

The second is leaving cash or low-yield assets idle for long periods. Idle money has no clear link to upcoming distributions or the trust’s terms.

The third is never reviewing the portfolio after the trust is funded or after a beneficiary’s needs change.

The fourth is following an outside adviser’s advice without reading it. A trustee who never reads those recommendations has a weaker position.

The fifth is mixing trust money with personal funds. Running personal transactions through trust accounts raises loyalty concerns under the same duty of loyalty described above.

Red Flags Every Beneficiary Should Recognize

A beneficiary can often spot trouble early. A trustee of an irrevocable trust must give qualified beneficiaries an accounting at least once a year, unless a family trust company, licensed family trust company, or foreign licensed family trust company, as defined in s. 662.111, is the trustee; in that case the trust terms may limit accounting to termination of the trust, removal or resignation of the trustee, or a qualified beneficiary’s demand. On reasonable request, the trustee must also provide a complete copy of the trust instrument (§ 736.0813).

Watch for these warning signs:

• Statements that arrive late or leave out purchases, sales or fees.
• Refusals or long delays when you ask for records or an explanation.
• Transfers to personal accounts that the trustee cannot explain.
• Assets that appear on one statement and vanish from the next.
• Changes to the investment mix that you were never told about.
• Pressure to stop asking questions.

Each sign may have an innocent cause on its own. A pattern of them deserves a close look and a written request for records.

Defenses a Trustee May Raise

A trustee facing a claim often raises several defenses. Some are strong and some are narrow. A trust term that relieves liability is limited. Under § 736.1011, it is unenforceable to the extent it covers a breach committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries, or if the trustee got it inserted by abusing a fiduciary or confidential relationship with the settlor.

Consent and ratification are another defense. A trustee is not liable to a beneficiary who consented to, released or ratified the conduct. That changes if the consent was induced by improper conduct, or if the beneficiary did not know their rights or the material facts (§ 736.1012).

Under Fla. Stat. § 736.1012, a trustee is not liable to a beneficiary for breach of trust if the beneficiary consented to the conduct constituting the breach, released the trustee from liability for the breach, or ratified the transaction constituting the breach. This protection does not apply if the consent, release, or ratification was induced by improper conduct of the trustee, or if, at the time of the consent, release, or ratification, the beneficiary did not know of the beneficiary’s rights or of the material facts relating to the breach. See Fla. Stat. § 736.1012.

A trustee may also argue that markets, not conduct, caused the loss. That argument needs records to back it up.

Measuring Damages and What a Court May Order

A trustee who commits a breach of trust is liable for the greater of two amounts. One is the amount needed to restore trust property and distributions to what they would have been, including lost income and appreciation. The other is the profit the trustee made from the breach (§ 736.1002).

When more than one person is liable, each may seek contribution from the others. Shares follow relative fault. A person who committed the breach in bad faith gets no contribution.

Beyond money, a court can order several remedies. It can compel an accounting, suspend or remove a trustee, reduce or deny compensation, or, subject to s. 736.1016, void an act of the trustee (§ 736.1001). An accounting is often the first step in working out what the trust lost.

Every case turns on its own records. No result can be promised in advance.

How Long You Have to Act

Time limits can be short, so start early. For a matter the trustee adequately disclosed in a trust disclosure document, a beneficiary generally has six months. The period runs from receipt of that document or a limitation notice, whichever is later (§ 736.1008). Under Fla. Stat. § 736.1008, unless sooner barred by adjudication, consent, or limitations, a beneficiary is barred from bringing an action against a trustee for breach of trust with respect to a matter adequately disclosed in a trust disclosure document unless a proceeding to assert the claim is commenced within 6 months after receipt from the trustee or a trust director of the trust disclosure document or a limitation notice that applies to that disclosure document, whichever is received later.

For matters not adequately disclosed, the limitation periods in chapter 95 of the Florida Statutes apply. Where no final accounting and required notice were given, the claim accrues when the beneficiary has actual knowledge of the facts, if shown by clear and convincing evidence, or upon the trustee’s repudiation of the trust or adverse possession of trust assets. That knowledge must be shown by clear and convincing evidence.

Keep a dated list of every statement, report and notice you receive.

If You Suspect Your Trust Lost Money

Start with paper. Gather the trust instrument, every account statement, the account agreements, letters or emails with the trustee, and any adviser reports. Put your questions in writing and keep copies.

Describe the facts in plain terms. Was there a sharp drop? Won’t the trustee explain a holding? Does money seem to be missing? Those facts shape which questions matter first.

Our office is in Coral Gables, Florida, and we serve clients in Fort Lauderdale and Boca Raton. Trust Counsel, PL advises and represents trustees, personal representatives and beneficiaries. Trust Counsel’s attorneys can serve individually as trustee or personal representative. Leslie V. Marenco is the responsible lawyer for this page. Tanya Vega is also a lawyer at the firm. For the broader practice, see our trust litigation attorney page.

If your trust statements show a loss you cannot explain, call (305) 707-7126 or reach out through our contact page. The first consultation is free, confidential and comes with no obligation to continue.

Frequently Asked Questions