The new Florida Trust Code.

• Author: Powell, David F.
• Position: Part 1

An important event occurred this past legislative session. Ch. 736 was added to the Florida Statutes. For estate, family law, elder law, and tax practitioners; for clients, their beneficiaries, accountants, and trustees; for regulated trust companies and for Florida courts, this promises to be a big deal!

A long time in the making, new Ch. 736 and some conforming amendments made to the Probate Code and other Florida statutes are the product of a five-year effort by the Ad Hoc Trust Code Revision Committee (1) to codify Florida trust law. When it takes effect, the new Florida Trust Code (FTC or the Code) will replace Florida's existing statutory trust law, most of which is found in Ch. 737.

As will soon be apparent, the new Code contains numerous changes and additions. As a consequence, it has a delayed effective date of July 1, 2007. Between now and then, practitioners and other interested persons have a window of time in which to familiarize themselves with the new Code. This two-part article is intended to facilitate that process. Part 2 will be published in the October issue of The Florida Bar Journal.

Introduction

Florida's interest in a trust code coincides with a similar interest around the country in general. This interest has been fueled primarily by the promulgation of the Uniform Trust Code in 2000. Presently, the Uniform Trust Code (UTC) has been enacted in 15 jurisdictions; (2) it is under active consideration in several more.

Early on, the committee concluded that uniformity in the law of trusts was a desirable goal. Except where the committee came to a different policy conclusion or where the committee wished to avoid approaches that have proven to be controversial elsewhere, in areas of trust law for which there was no existing judicial or statutory law in Florida, the committee's operating principle was to adhere as much as possible to the language of the Uniform Trust Code. The committee took a somewhat different view of areas already covered in F.S. Ch. 737. Although the committee did not hesitate to simplify, restructure, and, on occasion, revise provisions it believed could be improved, the basic operating principle with many of the existing Florida statutes was the old saw--if it ain't broke, don't fix it! The end result is that the Florida Trust Code is comprised about 40 percent of provisions found in prior Florida law and about 60 percent of provisions based on the Uniform Trust Code. Of the provisions in this latter group, almost a third were revised in some substantive respect.

The Code consists of the 13 parts of new Ch. 736. In the interest of uniformity, these parts correspond in title and content to the 11 articles that make up the Uniform Code, plus two additional parts covering rules of construction and charitable trusts, respectively. Part IX, titled Trust Investments, consists of a single section that incorporates by reference the provisions of F.S. Ch. 518. It will not be discussed further. The remaining parts are discussed in seriatim, beginning with Part I dealing with General Provisions and Definitions. Parts I through VII are included here. Discussion of Parts VIII through XIII and some of the conforming amendments will appear in the October issue.

Part I: General Provisions and Definitions

The several sections of Part I address the scope and applicability of the Code; the meaning of important terms; and the relative weight to be given to the Code, common law, and the terms of a trust. Also covered are the rules defining when a person or an organization is considered to have knowledge of a fact; the methods of giving and waiving notice; the rules for determining and changing a trust's principal place of administration; and the validity and permissible scope of nonjudicial settlement agreements.

Scope and Applicability

The "scope" of the Code is identical to that of F.S. Ch. 737, which the Code will eventually replace. According to [section] 736.0102, the Code applies to charitable and noncharitable express trusts and to trusts created by statute, judgment, or court decree. It does not apply to resulting trusts, constructive trusts, business trusts, land trusts, or any other arrangement that does not meet the definition of a trust under F.S. 731.201(34). Consistent with that, and except as otherwise provided in Part XIII of the Code or in a particular section, the provisions of the Code apply retroactively to all Florida trusts.

Important Terms

Section 736.0103 includes definitions for terms that are used in more than one section of the Code. These definitions are supplemented by other definitions in individual Code sections and by the definitions found in F.S. [section] 731.201, which a conforming amendment makes applicable to new Ch. 736.

Most of the definitions in [section] 736.0103 are sufficiently obvious or straightforward that there is no need to examine them directly. The terms "beneficiary" and "qualified beneficiary," however, are used so pervasively throughout the Code that extended examination of these terms is desirable.

The term "beneficiary" refers to the universe of persons who have a beneficial interest in a trust, as well as to any person who has a power of appointment over trust property in a capacity other than as trustee. (3) It is immaterial for this purpose whether the beneficial interest is present or future, vested or contingent, or whether the person having the interest is ascertainable or even living. By contrast, the term "qualified beneficiary" encompasses only a limited subset of all trust beneficiaries. In effect, the class is limited to living persons who are current beneficiaries, intermediate beneficiaries, and firstline remainder beneficiaries, whether vested or contingent. (4)

Sources of Trust Law: Default and Mandatory Rules

Although it is more comprehensive than F.S. Ch. 737, the Code does not try to anticipate all possible issues that can arise with respect to trusts. Instead, for matters not addressed in the Code, [section] 736.0106 provides that the Code is supplemented by the common law of trusts and by principles of equity.

As a general matter, a settlor is free to limit, expand, or override any Code provision. (5) Thus, the Code can, and usually will, be supplemented by the terms of a trust. There are exceptions, of course, and all of the exceptions are listed in [section] 736.0105(2). The exclusive list of exceptions found there can be organized into the following broad categories:

* Those relating to the requirements for the creation of a trust, including trust formalities and the requirement that the purpose of a trust be lawful, possible to achieve, and not contrary to public policy;

* Those containing public policy restrictions on the designation of a principal place of administration, and on the effect of penalty, spendthrift, and exculpatory clauses;

* Those covering procedural matters including jurisdiction, venue, and limitations on commencing judicial actions;

* Those dealing with court powers, including the power to adjust a trustee's compensation; to act in the interests of justice; to require, dispense with, modify, or terminate a trustee's bond; and, except as otherwise provided elsewhere in the Code, the power to modify or terminate a private or charitable trust;

* Those dealing with the duties of a trustee, specifically the duty to act in good faith and in accordance with the terms of the trust; the duty to notify, account to, and respond to requests for information by qualified beneficiaries; and with respect to a revocable trust, the duty to file a notice of trust at the death of the settlor and to pay the expenses and obligations of the settlor's estate; and

* Certain miscellaneous provisions, including one giving qualified beneficiaries and the trustee of a dynasty trust the power to amend or terminate the trust and another specifying the rights of third parties who interact with the trust, such as bona fide purchasers, tort or contractual claimants.

Principal Place of Administration

The Code imposes a duty on a trustee to administer the trust at a place that is appropriate to its purposes and administration. Subject to that duty, upon appropriate notice to the qualified beneficiaries, a trustee may move a trust's principal place of administration to another state or jurisdiction. (6)

Factual Knowledge

Section 736.0104 clarifies when a person is considered to have knowledge of a fact. That occurs if the person has actual knowledge of the fact, has received a notice or notification of it, or if under all of the facts and circumstances known to the person, he or she has reason to know it. With respect to an organization operating through employees, the organization has notice or knowledge of a fact involving a trust only from the earlier of the time the information was received by an employee having responsibility to act on matters involving the trust, or from the time the information would have been brought to the employee's attention if the organization had exercised reasonable diligence. (7)

Methods and Waiver of Notice

Notice of judicial proceedings under the Code is to be given as provided in the Florida Rules of Civil Procedure. Other notices and the sending of required documents must be accomplished in a reasonably suitable manner that is likely to result in receipt. Notice and the sending of documents are not required for persons whose identity or location is not reasonably ascertainable by the trustee or who have waived the sending of the notice or document. (8)

Nonjudicial Settlement Agreements

Under Code [section] 736.0111, interested persons may enter into a binding non-judicial settlement agreement with respect to any trust matter, provided the terms and conditions of the agreement could be properly approved by a court were court approval sought (9) and the agreement does not produce a result that is not authorized under other provisions of the Code.

Part II: Judicial Proceedings

...