Florida Bar Journal

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

Illustration by Barbara Kelley

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 co-trustee 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. §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 Modifications 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. §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. §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 trust status of the trust.^[14]

Finally, the definition of “terms of a trust” is expanded to include trust terms established by or amended by a trust director.^[15]

• Default and Mandatory Rules — Historically, the Florida Trust Code has provided that the terms of a trust cannot modify the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries. F.S. §736.0105(2)(b) was modified acknowledging that certain aspects of directed trusts, discussed in further detail below, would not be subject to this mandatory rule.

• Co-trustees — Because the FUDTA now addresses issues of fiduciary responsibility as they relate to co-trustees, prior F.S. §736.0703(9) was deleted. It is worth noting, however, that the “willful misconduct” standard of liability for the excluded trustee has not changed; it is just found in a different location.^[16]

• Limitations on Proceedings Against Trustees — F.S. §736.1008 deals with limitations on proceedings against trustees. That section was amended to specifically provide that a trust disclosure document and a “limitation notice” may now be issued by a trust director.^[17]

• Certification of Trust — F.S. §736.1017 allows the trustee to deliver a trust certification summarizing certain trust provisions to a person other than a beneficiary in lieu of delivering the trust instrument itself. This allows for the preservation of confidentiality as to the trust terms that are not relevant to the purpose for which the relevant trust terms are being delivered (e.g., title review and title insurance issuance in real estate transaction). This section was modified to now include the existence, scope, and exercise of powers of direction, as well as the identity of current trust directors in the certification, since such items will often be relevant to the purpose of the certification.^[18]

New Part XIV

The bulk of the new provisions dealing with directed trusts can be found in new Part XIV of the Florida Trust Code. The last two digits of each section number correspond to the source section of the uniform act.

F.S. §736.1403: Application; Principal Place of Administration

F.S. §736.1403(1) provides that Part XIV will apply to a trust, wherever created, if it has its principal place of administration in Florida.^[19] It further provides that Part XIV will apply only to decisions or actions occurring on or after the effective date of enactment of Part XIV, July 1, 2021.^[20] If the principal place of administration is moved to Florida, Part XIV applies only to decisions or actions occurring after such a move.^[21]

F.S. §736.1403(2) expands the statutory rules establishing the “principal place of administration” of a trust to include Florida if the trust terms so provide and a trust director’s principal place of business is located in or a trust director is a resident of Florida.^[22] Thus, the location of a trust director in Florida is sufficient in and of itself to allow Florida to be the principal place of administration.

F.S. §736.1405: Exclusions

Generally speaking, a nontrustee holding a power over a trust by its terms is subject to the FUDTA. Nonetheless, certain powers are excluded from the FUDTA.^[23] Principal among the effects of such exclusion is that the power holder is not subject to any fiduciary duty unless otherwise imposed by the trust terms. These excluded powers are:

1) Powers of Appointment — Historically, a nontrustee holder of a power of appointment held a mere personal power and did not have any fiduciary duties regarding the exercise of the power, absent contrary trust terms. This exclusion is continued by excepting powers of appointment from the FUDTA provisions.^[24]

A trust may grant a power to create, modify, or terminate a power of appointment. The provision does not characterize such a power as a power of appointment for these exclusionary purposes and subjects such a power to the FUDTA and its concomitant fiduciary duties.^[25] That is, a direct power of appointment over property is materially different than a power that does not directly impact property, but instead is a power to create, modify, or terminate a power of appointment, and it was determined that the broad authority under the latter warranted the imposition of fiduciary duties on the power holder. Nonetheless, the last clause of F.S. §736.1405(3)(b) is intended to clarify that if a holder of a traditional power of appointment with power thereunder to create a new trust or other property interest has with it the power to create a new power of appointment (e.g., under the new trust arrangement), such power in the original power holder to create a new power of appointment should nonetheless still be an excluded power of appointment for these purposes.^[26] This is because in that instance, the power to create, modify, or terminate is only an adjunct power to the power of appointment and cannot be exercised separate and apart from an appointment otherwise occurring under the power.

2) A power to appoint or remove a trustee or trust director.^[27]

3) A power of a settlor over a trust while it is revocable by that settlor.^[28]

4) A power of a beneficiary to the extent the exercise or nonexercise of the power affects the beneficial interest of the beneficiary or another beneficiary represented by that beneficiary.^[29]

5) A power if the trust provides it is a nonfiduciary power, and it must be held in a nonfiduciary capacity to achieve the settlor’s tax objectives.^[30] This provision is to allow for the availability of grantor trust treatment for federal income tax purposes to a settlor via certain common tax planning techniques (which do not function if the power holder has a fiduciary duty regarding that power).

6) A power if the trust provides it is a nonfiduciary power and it allows reimbursement to settlor of income tax liabilities attributable to the income of the trust.^[31] This allows a trust director to pay the income tax liabilities of a settlor attributable to the grantor trust status free of a conflicting duty to trust beneficiaries.

7) A power to add or release a power if such power can affect the grantor trust status of the trust.^[32] Again relating to grantor trusts, this permits the trust director to toggle such status on or off (to the extent allowed under federal income tax law) free of a duty to trust beneficiaries.

F.S. §736.1406: Powers of Trust Director

F.S. §736.1406 limits the powers of a trust director to the powers granted in the trust instrument and any further powers not expressly granted that are appropriate to the exercise or nonexercise of the power that is granted.^[33] It also provides that trust directors with joint powers must act by majority decision.^[34]

The draftspersons discussed at length whether the further power language under F.S. §736.1406(3)(a) included the power of the trust director to hire attorneys and others to assist the trust director in performing its powers of direction. The draftspersons concluded that such a power to hire and direct payment of fees and costs for those engaged was implicit in the statutory language, as noted in the comments to the uniform act.^[35] Thus, explicit statutory language to this effect was not needed or desirable. The draftspersons also concluded that such powers extended to the hiring of attorneys in defense of a breach of trust action. The draftspersons also noted that the statutory language does not require that such hiring and payment powers will exist in all situations and to the same extent in all situations, but arises and applies only to the extent such powers are “appropriate to the exercise or nonexercise of a granted power of direction” per the statutory language. On a related matter, the draftspersons added to the uniform act in F.S. §736.1416(q) a provision that subjects the payment of attorneys’ fees and costs of a trust director to the provisions, procedures, and limitations of F.S. §736.0802(10), since the draftspersons could determine no significant policy reason why F.S. §736.0802(10) should apply to such payments when incurred by a trustee and not when incurred by a trust director.^[36]

F.S. §736.1406: Limitations on Trust Director

A trust director with powers relating to Medicaid payback or a charitable interest is subject to the same rules as a trustee regarding those items.^[37]

F.S. §736.1408: Duty and Liability of Trust Director

A trust director is subject to the same fiduciary duty and liability as a trustee would have if it had such a power.^[38] However, such duty and liability can be modified under the trust instrument in the same manner as a trust instrument can modify the duty and liability of a trustee.^[39] Thus, for example, since the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries cannot be eliminated by the trust instrument under F.S. §736.0105(2)(b) for a trustee, the same minimum duty applies to the duty of a trust protector. The terms of the trust may also impose a duty or liability on a trust protector that would not otherwise apply to a similarly acting trustee.

A trust director that is a health-care provider that is licensed, certified, or otherwise authorized or permitted by law to provide health care will not be under any duty or liability under the FUDTA when acting in such capacity.^[40]

F.S. §736.1409: Duty and Liability of Directed Trustee

Prior to the enactment of the FUDTA, under F.S. §736.0808(2), a directed trustee was obligated to act to follow a trust director’s power of direction, unless such action was “manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust.”^[41]

Now, a directed trustee is obligated to “take reasonable action to comply” with a direction received.^[42] Under this provision, a directed trustee is not permitted to act regarding a power of direction if by so doing the trustee would be engaging in “willful misconduct.”^[43] The standard is a departure from the standard described above under prior law.

Aside from being the language of the uniform act itself, the “willful misconduct” limitation on acting is appropriate since it is the same standard applicable under earlier law when one trustee had power to direct a co-trustee to act.^[44] Since that standard was acceptable when one fiduciary was directing another, and since a trust director is now imbued under the FUDTA with the same fiduciary duties as a trustee under F.S. §736.1408, it is appropriate that the willful misconduct standard is similarly applied to a directed trustee under the act. That is, no compelling policy reasons could be discerned why a trustee that is being directed should have a different limitation dependent on whether the directing person is a co-trustee with fiduciary duties or a trust director with fiduciary duties.

Neither the uniform act nor the FUDTA defines “willful misconduct.” Nor does the Florida Trust Code. Some states, such as Delaware, do provide a definition in their statutes. The draftspersons determined that such a definition was outside of the scope and purpose of implementing FUDTA, and may have a collateral impact on other areas of Florida statutory law that employ the term “willful misconduct” without a statutory definition, even if the definition was statutorily limited to the Florida Trust Code or the FUDTA provisions.

The comments to the uniform act provide:

Subsection [(1)] requires a trustee to act reasonably as it carries out the acts necessary to comply with a trust director’s exercise or nonexercise of the director’s powers. If a trust director with a power to direct investments directs the trustee to purchase a particular security, for example, the trustee must take care to ensure that the security is purchased within a reasonable time and at reasonable cost and must refrain from self-dealing and conflicts of interest in doing so.

The duty to take reasonable action under subsection [(1)] does not, however, impose a duty to ensure that the substance of the direction is reasonable. To the contrary, subject to subsection [(2)], a trustee that takes reasonable action to comply with a power of direction is not liable for so acting even if the substance of the direction is unreasonable. In other words, subject to the willful misconduct rule of subsection [(2)], a trustee is liable only for its own breach of trust in executing a direction, and not for the director’s breach of trust in giving the direction. Returning to the example of a direction to purchase a security, the trustee is not required to assess whether the purchase of the security would be prudent in relation to the trust’s investment portfolio; the trustee is only required to execute the purchase reasonably.^[45]

Such commentary makes clear that the directed trustee is liable only for its own breach of conduct in following a direction, subject to the willful misconduct provisions of subsection (2). However, the uniform act comments also provide:

A trustee’s duty to take reasonable action is limited by the scope of the trust director’s power of direction. A directed trustee should not comply with a direction that is outside of the director’s power of direction and beyond the director’s further powers under Section 6(b)(1). To do so would violate the trustee’s duty under subsection (a) and the trustee’s background duty to act in accordance with the terms of the trust. See, e.g., Uniform Trust Code §105(b)(2) (amended 2005) (making mandatory “the duty of a trustee to act…in accordance with the terms…of the trust”); Restatement (Third) of Trusts §76 (2007) (“The trustee has a duty to administer the trust…in accordance with the terms of the trust.”).^[46]

A concern exists that this commentary on the trustee’s duty to act in accordance with the trust terms may be interpreted to support a claim that a director’s breach of trust in giving a direction is per se a direction that is outside of the scope of the granted power of direction or further powers, and, thus, following the direction would be a breach of trust by the directed trustee. Such an interpretation would be contradictory to the preceding quoted uniform act comment and conclusion that the directed trustee is liable only for its own breach of trust (subject to the willful misconduct provisions of F.S. §736.1409(2)). Thus, subsection (3) was added to clarify that such an interpretation by reason of the uniform act comments would be improper. This provision acknowledges the directed trustee’s duty to determine if a direction is within the scope of granted power of direction, but also provides that a direction which constitutes or may constitute a breach of trust (by the trust director or the directed trustee) does not by itself mean the direction is outside the scope of a granted power of direction.^[47]

The FUDTA limits the exercise of a power of direction to release a trustee or trust director from liability for breach of trust.^[48]

F.S. §736.1409(5) provides that a directed trustee that has reasonable doubt about its duty under this section can apply to the court for instructions, with attorneys’ fees and costs to be paid from the trust as provided in the Florida Trust Code.^[49]

Beyond the foregoing duties and liabilities imposed on the directed trustee, the FUDTA permits the trust terms to impose additional duties and liabilities on a directed trustee.^[50]

F.S. §736.141: Information Exchange and Reliance

The trustee and the trust director have a duty to provide information to each other to the extent the information relates to powers or duties of both of them.^[51] They may act in reliance on such information without committing a breach of trust unless their action constitutes willful misconduct.^[52] A trust director is also required to provide information to a qualified beneficiary upon a written request to the extent the information is reasonably related to the powers or duties of the trust director.^[53]

The draftspersons intended that a trust director have no other direct duty to account or provide information to a beneficiary (although a trust director may in its discretion issue a trust disclosure document to commence the statute of limitations for breach of trust).^[54]

F.S. §736.1411: No Duty to Monitor, Inform, or Advise

A trustee has no statutory duty to monitor a trust director, nor to advise a settlor, beneficiary, trustee, or trust director as to how the trustee might have acted differently than the trust director.^[55] A trust director likewise has no statutory duty to monitor a trustee or another trust director, nor to advise a settlor, beneficiary, trustee or another trust director as to how the trust director might have acted differently than a trustee or another trust director.^[56] The provision does not bar a trustee or trust director from doing any of the foregoing, and if done, the actor does not assume a duty to continue to do so in the future.^[57]

F.S. §736.1412: Application to Co-trustee

When trust terms confer a power on one or more trustees to the exclusion of another trustee to direct or prevent actions of the other trustee, the trustee subject to direction has the same duties and liabilities as imposed under the FUDTA on a directed trustee under F.S. §§736.1409 through 736.1411.^[58] The draftspersons’ reasoning was that the trustee in both circumstances is being directed by another fiduciary and thus there is no justification for imposing different rules or standards on the trustee subject to direction based on whether the person giving direction is a trustee or a trust director. Regarding the required standard of conduct for liability, the willful misconduct standard of current F.S. §736.0603(9) continues to apply, and thus this aspect of trustee liability remains the same as under prior law.

F.S. §736.1413: Limitations on Actions Against a Trust Director

The same limitations period under F.S. §736.1008 that applies to breach of trust actions against trustees is applied to breach of trust actions against trust directors.^[59] Similarly, a trust director can benefit from the six months limitations period under current law through the issuance of a qualified trust accounting or written report.^[60]

F.S. §736.1414: Defenses in Action Against a Trust Director

A trust director is provided with the same defenses in a breach of trust action as are available to a trustee.^[61]

F.S. §736.1415: Jurisdiction Over a Trust Director

A trust director submits to the personal jurisdiction of Florida courts by accepting appointment.^[62] Other permissible methods of obtaining jurisdiction continue to apply.^[63]

F.S. §736.1416: Application of Trust Code Provisions to Trust Director

The Florida Trust Code contains numerous provisions that apply to trustees. Without further statutory modifications, these provisions would not apply to a trust director. The draftspersons determined that many of the provisions should apply to a trust director, while others should not. Thus, a blanket inclusion or exclusion of Florida Trust Code trustee provisions to trust directors was deemed inappropriate. Instead, the draftspersons reviewed all applicable Florida Trust Code provisions and determined which should be extended to trust directors. Items in the Florida Trust Code that apply to trustees and are not expressly made applicable to a trust director by this provision or elsewhere in the act are intended not to apply to a trust director. The list is lengthy, so the reader is directed to F.S. §736.1416 of the FUDTA for those specific items.

Of note, this section applies the rules of F.S. §736.0701 for acceptance of trusteeship by a trustee to acceptance of the office of trust director by a named trust director.^[64] Because of the nature of many trust director powers, limiting acceptance to the means described in F.S. §736.0701 may leave interested persons (including the trustee) in doubt as to whether a trust director has accepted the office. This is because it is relatively demonstrable when a trustee undertakes its office by accepting trust property or exercising powers or performing duties, all of which constitute acceptance under F.S. §736.0701(2). So acceptance by a trustee can be readily ascertained by determining whether a trustee undertook any such items. However, many trust director powers do not involve accepting trust property nor immediately exercising powers or performing duties. An example would be the power to amend a trust, which may not be acted upon for many months or years, if at all. Absent compliance with a method of acceptance provided in the trust agreement, it would be difficult to know if a trust director has accepted its office. This section of the FUDTA permits a trustee, settlor, or a qualified beneficiary to make a written demand on a trust director to accept or confirm prior acceptance of the office to which the trust director must respond within 60 days.^[65] The draftspersons believed it would be problematic to automatically disqualify the trust director for failing to respond within that 60-day period, but intended that the mandatory obligation to respond can be enforced by an action of an interested person to obtain a determination by a court of competent jurisdiction as to acceptance or nonacceptance.

This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Robert S. Swaine, chair, and Allison Archbold and Homer Duvall, editors.