Below is a copy of article to be published this evening on Leimberg Information Services:
Florida’s version of the Uniform Directed Trust Act (the “FUDTA”) has passed both houses of the Florida legislature and is expected to be signed into law by Governor DeSantis. Charles (Chuck) Rubin chaired the Florida Bar subcommittee that reviewed and adapted the Uniform Directed Trust Act, and Jenna Rubin also served on the subcommittee. They provide a review of the key provisions that practitioners should be aware of.
QUESTIONS AND ANSWERS
Who does the FUDTA
principally affect?
Trust directors (persons with authority under a trust instrument to give directions
to be followed) and directed trustees (the trustees who are supposed to follow
the directions).
Can I avoid the
application of the FUDTA by not calling the person with the power to direct a
protector or trust director? No. The label given is irrelevant. If a person has the
power to direct, then they are a trust director.
Can a trustee be a
trust director?
No, only persons who have a power to direct but are not trustees are
trust directors.
So, any non-trustee with
a power to direct is a trust director? Mostly, but there are a few powers one can
hold that alone will not make you a trust director, such as the power to remove
or appoint a trustee, a power of appointment, and a power of a settlor over a
revocable trust.
Why should I care
whether a power holder is a trust director? Well, there are a lot of rules and
benefits that apply under the FUDTA, but probably the biggest implication is
that the trust director is subject to fiduciary duty in the exercise of the power
of direction in the same manner as a trustee. Note that some states do not
impose fiduciary duties on persons with roles similar to a trust director, or
allow the trust instrument to remove such duties entirely.
Wow, that’s pretty
harsh for a player with a small role. How are settlors supposed to get someone
to take on the role if they have such a duty and the liability that comes along
with it?
Helpfully, like most provisions in the Trust Code, the trust provisions can be
drafted to reduce (or increase) the level of duty.
So I can relieve the
trust director of all duty and liability? No, the FUDTA will not let you go that far.
Just like a trust instrument cannot entirely relieve a trustee of fiduciary
duty (the duty to act in good faith and in accordance with the terms of the
trust must always remain), a trust director is also subject to the good faith
minimum duty no matter what the trust instrument says.
A trust director can
only exercise the powers granted to it in the trust instrument, correct? Mostly, but in addition
to the express powers, the trust director also has further powers appropriate
to the the exercise or nonexercise of the expressly granted power of direction.
Draftpersons can breathe easier knowing they do not have to think of and
include every explicit power that a trust director may need in order to
exercise the desired power of direction.
How can a trust
director protect itself from liability? Not serve! But short of that, the Trust Code
provisions that shorten the applicable limitations period for breach of trust to
six months via the delivery of a trust disclosure document applies equally to
trustees and trust directors.
Does the directed
trustee have to follow the directions of the trust director, even if the directed
trustee disagrees with the appropriateness of the directions? Yes. The only
exceptions are if the trust director is acting outside the scope of the power
of direction, or if following the directions would result in willful misconduct
by the directed trustee.
What if the direction is
a breach of trust by the trust director – does that make it outside the scope
of the power of direction and thus the directed trustee does not have to follow
it?
No, that is not the case. The policy is that if the trust director commits a
breach of trust in making the direction, that trust director is liable. This encourages
the directed trustee to act in accordance with directions, and since the
beneficiaries can sue the trust director they have a remedy and do not have to also
be able to sue the trustee.
How can the directed
trustee protect itself as to questionable instructions? The trustee can go to
court and seek instructions as to its obligations to follow the directions, and
can charge the trust for fees and costs incurred in doing so.
Can a trust director
demand relevant information from the directed trustee? Yes as to information
needed to do its job, and the directed trustee can similarly demand needed
information from the trust director.
Does the trust director
have to keep an eye on the trustee or give advice or notifications to
beneficiaries or other interested persons? No, in the absence of trust provisions
requiring it. And the same applies to the directed trustee in regard to
monitoring the trust director.
A trust director situation
seems similar to a trust that gives power to one trustee to direct a co-trustee.
Are the duties and obligations of the affected fiduciaries similar under the
Florida Trust Code?
Yes, the FUDTA coordinates the duties and liabilities in those two situations so
that they are pretty much the same.
Are the rules for suing
a trust director for breach of trust similar to suing a trustee? Yes. Such actions are
subject to the same statute of limitations and defenses.
A trustee and a trust
director both exercise powers over a trust. Do all the Florida Trust Code
provisions applicable to trustees apply to trust directors? No, they do not.
However, there is an extensive list of Florida Trust Code provisions included
in the FUDTA that were determined to be appropriate to apply to trust directors,
and those listed provisions do apply.
Does the FUDTA apply
only to trusts created after the July 1, 2021 effective date? No, it applies also
to trusts created before then, but only as to decisions or actions occurring
after that date.
How closely does the FUDTA track the Uniform Directed Trust Act (the “UDTA”)? The FUDTA closely follows the UDTA so decisions from UDTA states will likely be useful in interpreting the FUDTA (and vice-vers_, but care should be exercised since the FUDTA does have some modifications and additions.
