The New Florida Directed Trust Act
Trust and Estates 08/17/21 Miranda Weiss
Florida recently enacted its version of the Uniform Directed Trust Act, which authorizes someone other than the Trustee (referred to as a Trust Director) to direct the Trustee to act or not to act. Florida is 1 of 15 states to enact the Uniform Directed Trust Act.
The scope of the Trust Director's powers can be broadly or narrowly defined in the trust instrument. Persons with a Florida trust might use a Trust Director to direct the Trustee with regard to investment strategy, whether to sell or retain a particular asset, or with regard to a closely held business interest or concentrated position. A Trust Director might also be used to direct the Trustee to make distributions to or withhold distributions from one or more beneficiaries.
Prior to the Act, the fiduciary duty imposed on a Trust Director and a "Directed Trustee" (that is, a trustee who is directed to act) was unclear. The Act clarifies this duty by holding a Trust Director to the same fiduciary duty as a Trustee. Although a trust's terms can specify this duty, a Trust Director, like a Trustee, has a minimum and mandatory fiduciary duty to act in good faith and in accordance with the beneficiaries' interests.
A Directed Trustee is required to take reasonable action to follow a Trust Director's direction and is not liable for such action. A Directed Trustee may not, however, comply with a Trust Director's direction if doing so will result in willful misconduct. This level of duty imposed on the Trustee can be increased under the terms of the trust, but the default rule is established to encourage the Trustee to act in accordance with a Trust Director's direction.
The Act is effective July 1, 2021, but applies to any act or decision occurring after this effective date, even if the trust was created prior to such date. The Act applies to any person who possesses the power to direct a Trustee, even if the trust refers to such person by a name other than Trust Director. Thus, existing Florida trusts will be subject to this Act any time that a Trust Director (or a person with a synonymous name, such as Trust Advisor) directs the Trustee to act or not to act.
Trust Directors should seek guidance on their fiduciary duty and the scope of their powers before exercising their power of direction. Likewise, a Directed Trustee, before complying with any direction, should consider whether such direction is within the Trust Director's powers and whether complying would subject the Directed Trustee to liability. Trusts created prior to the Act's effective date should be revisited to ensure the proper level of fiduciary duty is imposed within the bounds of the Act and to provide for any necessary indemnification provisions in light of the mandatory fiduciary duty.
To learn more on the Florida Directed Trust Act, please contact your Quarles & Brady attorney or:
- Miranda Weiss: (239) 434-4977 / [email protected]