Protectors and Directors and Advisers: Oh My! The New Florida Uniform Directed Trust Act.

• Author: Rubin, Charles D.

In July 2021, Florida adopted the new Florida Uniform Directed Trust Act (FUDTA), (1) in response to the increased use of directed trusts in Florida. Simply put, a directed trust is a trust in which a person other than a trustee has a power over some aspect of the trust's administration. (2) For years, trusts have included "trust protectors," "trust directors," or "trust advisers" who typically have such powers. While the name may vary, the idea remains the same --there is a division of authority between someone who is not serving as trustee of the trust and the trustee. As directed trusts became more commonplace, questions regarding the fiduciary status of a nontrustee that has a power over a trust and the fiduciary duty of a trustee relating to the actions directed by the nontrustee necessitated the enactment of a more robust legislation governing these types of trust arrangements.

Historical Perspective

Historically, the trustee of a trust had the responsibility to handle all aspects of the trust's administration. This person (or persons, in the case of co-trustees) was solely responsible for administering the trust, investing the trust assets, and making distributions from the trust. Existing trust law laid out the fiduciary duties that a trustee owed to the trust's beneficiaries in performing these acts.

Over time, draftspersons began to realize that there were benefits to dividing power and responsibilities among different fiduciaries for a variety of reasons. While the ability to appoint co-trustees could address some of these concerns, there were circumstances in which a full cotrustee arrangement did not always make sense, inviting the rise of trust directors in trust instruments. Typically, a trust director has a narrower role than a co-trustee and is limited to only performing acts within that role. Thus, where a co-trustee had the same responsibility as a trustee over all aspects of administration, a trust director could be appointed for the sole purpose of removing and replacing trustees or investing certain assets, and so on.

F.S. [section]736.0808 very narrowly addressed some of the issues that arose between trust directors and trustees. It provided that if the terms of a trust conferred on a person other than the settlor of a revocable trust the power to direct certain actions of the trustee, the trustee was required to act in accordance with the direction unless the attempted exercise was manifestly contrary to the terms of the trust or the trustee knew that the attempted exercise would constitute a serious breach of fiduciary duty that the person holding the power owed to the beneficiaries of the trust. (3) It allowed the terms of the trust to confer on a trustee or other person a power to direct the modification or termination of the trust. (4) The statute dealt with the issue of a trust director's fiduciary duty by providing that a person, other than a beneficiary, who held a power to direct was presumptively a fiduciary who, as such, was required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries, and was liable for any loss that resulted from a breach of fiduciary duty. (5) There was little by way of caselaw interpreting these provisions.

With the increasing number of directed trusts came numerous legal questions which were not fully answered by existing Florida law. How is fiduciary responsibility allocated between the trust director and the trustee? How much information do the trust director and the trustee need to share with each other? Can a trust director receive compensation for its work? The Uniform Directed Trust Act (uniform act) was drafted to address these and other questions that had arisen throughout the country as directed trusts gained in popularity.

As of January 2022, the uniform act has been adopted by 16 states, including Florida, and has been introduced in two others. (6) The act provides clear, practical answers to questions that have arisen regarding the division of authority between the trust director and the trustee.

Recognizing the benefits that could be gained from adopting the uniform act in Florida, the Real Property, Probate and Trust Law Section of The Florida Bar sought the enactment of a Florida-specific version of the uniform act. As a result, FUDTA has been added as a new Part XIV of the Florida Trust Code. It was determined that a separate Part XIV was superior to scattered inclusion of uniform act provisions throughout the Florida Trust Code to preserve the uniform act structure, and the FUDTA provisions are discrete enough to warrant a separate part. This allows Florida to obtain the benefits of close coordination with a uniform act and avoids the undue complexity of specifically excluding provisions throughout the Florida Trust Code that may not be of relevance to trusts that are not directed trusts. In addition to the new Part XIV, there are scattered modifications to the existing Florida Trust Code to better coordinate the FUDTA with existing trust law.

Notable Modifcations to Existing Trust Law

* Definitions--As a threshold matter, definitions relating to directed trusts were added to the list of definitions contained in F.S. [section]736.0103. It is worthwhile to review these definitions in their entirety to better understand the terminology used throughout the FUDTA (and this article). A "directed trust" is defined as "a trust for which the terms of the trust grant a power of direction." (7) A "directed trustee" means "a trustee that is subject to a trust director's power of direction." (8) A "trust director" is "a person who is granted a power of direction by the terms of a trust to the extent the power is exercisable while the person is not serving as a trustee." (9) Notably, the definition provides that a person is a trust director whether or not the terms of the trust refer to the person as a trust director and whether or not the person is a beneficiary or settlor of the trust. (10)

A "power of direction" is defined as "a power over a trust granted to a person by the terms of the trust to the extent the power is exercisable while the person is not serving as trustee." (11) The term includes, but is not limited to, a power over the investment, management, or distribution of trust property, a power to amend a trust instrument or terminate a trust, or a power over other matters of trust administration. (12) The definition of a power of direction specifically excludes powers excluded from the FUDTA in new F.S. [section]736.1405(2). (13) These powers are powers of appointment, the power to appoint or remove a trustee or trust director, the power of a settlor over a trust while the trust is revocable by that settlor, the power of a beneficiary over a trust to the extent the exercise or nonexercise of the power affects the beneficiary or someone represented by the beneficiary, the power over a trust if the power is held in a nonfiduciary capacity to achieve the settlor's tax objectives or the power to reimburse the settlor for the settlor's income tax liabilities, and the power to add or release a power under the trust instrument impacting the grantor...