The new Florida Family Trust Company Act.

• Author: Vogelsang, Stephen G.
• Position: Real Property, Probate and Trust Law

The Florida Family Trust Company Act, signed into law by Governor Scott on June 13, 2014, created new F.S. Ch. 662. The act establishes a statutory framework authorizing the organization, operation, and regulation of family trust companies (FTC) in Florida. An FTC is an entity that provides trust services similar to those that can be provided by an individual or public financial institution, such as serving as a trustee of trusts held for the benefit of family members, while at the same time providing services typically provided by a family office, including investment advisory services, wealth management, and general administrative services. A Florida FTC must be owned by family members and must limit its services to members of one or two families and a limited number of key employees. (1) There was no statutory authority for operating an FTC in Florida prior to the October 1, 2015, effective date of the act.

The need for statutory authority is evidenced by the fact that several FTCs are currently serving families in Florida. They were able to do so by obtaining private exemption letters issued by Florida's Office of Financial Regulation (OFR), the state agency charged with supervising banks and trust companies in Florida. FTCs currently operating under OFR exemption letters will need to act quickly to comply with the act. Specifically, existing FTCs will need to apply to become licensed FTCs or register as unlicensed FTCs prior to the end of 2015 or cease operating in Florida. (2)

House Bill 825 (the glitch bill) (3) was intended to improve the Florida Family Trust Company Act as passed by the 2014 legislature. It was hoped that the glitch bill would be passed prior to the act's October 1 effective date. The bill was scheduled for a final vote on the House floor on the afternoon of March 28, 2015, the day the annual legislative session came to an abrupt end. This article sets forth the general licensure and registration requirements under the act and describes the act's shortcomings, which the glitch bill was intended to remedy.

Existing FTCs Must Comply with the Act by Year-end or Cease Operations

The Estate and Trust Tax Committee of the Real Property, Probate and Trust Law Section of The Florida Bar drafted the act and the glitch bill to exclude existing FTCs operating under OFR exemption letters from compliance with the act. (4) Unfortunately, the legislature's failure to pass the glitch bill in its original form means that all FTCs currently operating in Florida must either apply to become licensed FTCs or register as unlicensed FTCs under the act before the end of 2015 even if OFR has previously issued them an exemption letter. There is concern that Florida may lose the opportunity to keep existing FTCs and attract new ones.

* Registration of Unlicensed FTCs --For FTCs that don't wish to become licensed FTCs, compliance with the act's initial registration requirements should not be difficult. Although OFR has yet to publish the application for registering an unlicensed FTC, it is expected that a prospective FTC need only provide the name of the FTC's designated relative, the telephone number, and street address of the FTC's physical office in Florida and the name and address of its registered agent in Florida. The FTC must pay a nonrefundable registration fee of $5,000, which will be deposited into the Financial Institution Regulatory Trust Fund. The funds will be used to administer the act. (5) FTCs filing an application for registration under the act will also be required to provide OFR with a statement indicating that they will not engage in activities prohibited by the act including providing fiduciary services to the general public, advertising services to the general public, engaging in commercial banking, serving as a personal representative or co-personal representative of a probate estate administered in Florida, or serving as an attorney-in-fact under a power of attorney pursuant to F.S. Ch. 709. (6) Finally, unlicensed FTCs will be required to maintain minimum capital of $250,000, (7) which must be held in the form of cash or treasury obligations. (8) The registration application for an unlicensed FTC, and even the minimum capital requirements, aren't particularly burdensome.

More worrisome for existing FTCs and families considering forming new unlicensed FTCs are the potentially intrusive, mandatory OFR examinations, which unlicensed FTCs will be subject to under the act. (9) The glitch bill would have exempted unlicensed FTCs from OFR examinations. (10)

* Application for Licensed FTCs--Existing or prospective FTCs wishing to become licensed FTCs will be subject to much closer scrutiny during the application process. The overwhelming majority of FTCs are expected to organize as unlicensed FTCs because they do not want the additional regulatory supervision applicable to licensed FTCs. Some FTCs, however, will prefer additional scrutiny in order to qualify for exemption from SEC regulation, to avoid adverse gift or estate tax consequences, or simply to give their families additional comfort that an independent agency is overseeing the operation of the FTC.

OFR will conduct an investigation of each prospective licensed FTC upon receipt of a completed application to determine whether the FTC satisfies certain requirements. In order to become licensed, an FTC must file an application with OFR, pay a $10,000 application fee, and undergo an initial investigation by OFR. The application for licensure will require FTCs to provide copies of the FTC's organizational documents and certain other basic information including the FTC's physical...