Q&A on Florida's New Directed Trust Act

 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.