Trust protectors under current Florida law: a passing trend or valuable planning tool?

• Author: Goethe, Jeffrey S.

The use of trust protectors has attracted much attention over the past few years' but as with many planning tools' each client's circumstances must be considered. When drafting to build flexibility, alternatives such as powers of appointment, terms permitting nonjudicial modification, decanting, and designated representatives must be considered as alternatives to, or in conjunction with, the use of a trust protector. This article includes a brief history of trust protectors and the current status of the law on trust protectors, and then analyzes the nature of a trust protector's duties.

The History of Trust Protectors, Advisors, and Directors

Professor Lawrence A. Frolik reflected on the development of the law of trust protectors in the United States, citing the "trust adviser" discussed in a 1965 Harvard Law Review article. (1) Although trust protectors are often considered to be a tool for offshore trusts, (2) they can be a tool within a trust for a Florida resident. With the increased perpetuities period under F.S. [section]689.225, permitting trusts to last as long as 360 years, uncertainty about future tax law developments, and the need to address changes in the lives of the trust beneficiaries over a long period of time, trust protectors can be used to build flexibility into the trust.

Sources of Law for Trust Protectors

* Caselaw--As statutory law continues to develop, caselaw is important and may be the only source of law for issues coming before a court. For a good discussion of recent cases, see Professor Frolik's article. (3)

* Minassian v. Rachins--In Minassian v. Rachins, 152 So. 3d 719 (Fla. 4th DCA 2014), Minassian established a trust that designated his estate planning attorney as his trust protector. The settlor was survived by his wife and children from a prior marriage. The trust provided that, upon his death, a trust would be established for his wife. He intended that his wife continue to enjoy the lifestyle established during the marriage. The children filed suit as qualified beneficiaries of the trust, alleging she breached her fiduciary duty as trustee by improperly administering the estate. The wife claimed that the trust was drafted in such a way that the children were not qualified beneficiaries of her trust, because the trust terminated at her death, and new trusts were created for their benefit after her death. The court focused on the language that provided for "shares" for each of the children, rather than new trusts. After a hearing on the wife's motion to dismiss, the trial court ruled against her. The trust instrument allowed the wife to appoint a trust protector. The instrument provided very detailed authority to the trust protector. The appellate court described the terms of the trust in detail:

After the trial court denied the motion, the wife appointed a "trust protector" pursuant to [art.] 16, [[section]]18 of the trust. This section authorizes the wife, after the husband's death, to appoint a trust protector "to protect ... the interests of the beneficiaries as the [t]rust [p]rotector deems, in its sole and absolute discretion, to be in accordance with my intentions...." The trust protector is empowered to modify or amend the trust provisions to, inter alia: (1) "correct ambiguities that might otherwise require court construction"; or (2) "correct a drafting error that defeats my intent, as determined by the [t]rust [p]rotector in its sole and absolute discretion, following the guidelines provided in this [a]greement[.]" The trust protector can act without court authorization under certain circumstances. The trust directs the trust protector, prior to amending the trust, to "determine my intent and consider the interests of current and future beneficiaries as a whole," and to amend "only if the amendment will either benefit the beneficiaries as a group (even though particular beneficiaries may thereby be disadvantaged), or further my probable wishes in an appropriate way." The trust provided that "any exercise ... of the powers and discretions granted to the [t]rust [p]rotector shall be in the sole and absolute discretion of the [t]rust [p]rotector, and shall be binding and conclusive on all persons." (4)

Minassian's children filed a supplemental complaint to challenge the validity of the proposed amendment by the trust protector. The wife claimed that the amendment resolved an ambiguity.

The new [[section]]1 provided, "Upon the death of [the wife] and the termination of the [f]amily [t]rust as provided in [art. 10], [[section]]7, if there is any property remaining, it shall be disbursed to a new trust to be created upon the death of [the wife] with a separate share for each of" the children. (5)

The trial court found that there was no ambiguity, that the amendment was not in the interest of the beneficiaries, and that the amendment was improper. The Fourth DCA overruled the trial court, finding that Florida law permits the use of trust protectors, that the powers granted to the trust protector to modify the trust are authorized by Florida law, and that the settlor intended to use the trust protector, instead of the court, to resolve any ambiguity or problem with drafting of the trust.

* In re Rivas--In In re Rivas, 540 N.Y.S.2d 944 (2011), the New York court recognized the ability of a settlor to designate someone to direct or advise the trustee. (6) New York has no statutory provisions for a trust protector or director. A more recent New York ruling held that a committee of trust advisors was subject to the fiduciary duties governing trustees.

For the reasons set forth above, this [c]ourt cannot allow the proposed investment of the Helen Rivas Trust corpus, as such investment in the LTIP is contrary to the [a]greement and the intent of the settlor, may give rise to an impermissible division of fiduciary loyalties among the majority of the [a]dvisory [c]ommittee, and...