In July of 2021, Florida adopted the new Florida Uniform Directed Trust Act (FUDTA). Essentially, the FUDTA gives authority to someone, other than a trustee, to make certain decisions for the trust and give direction.
What is a directed trust and how can it benefit you?
In a world of constant evolution for estate planning, wealth preservation, and asset protection, a new concept adopted by the Florida legislature has provided a new way for administering trusts. The FUDTA provides more ways trusts can be drafted in efforts to fulfill your client’s needs.
Directed trusts are “trusts for which the terms of the trust grant a specific power of direction” (see Fla Stat. 736.0103(6)). How would a directed trust differ from your typical revocable trust? Well, directed trusts allow for someone, other than the designated trustee, to act out specific directions as specified in the contents of the trust. This specific person is called a “trust director,” which is defined in the Florida statute as “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 the trustee.” See Fla Stat. 736.0103(25).
Let’s Break This Down More….
According to the Florida Statute, 736.1408, the trust director is subject to the same rules and liabilities as a trustee, in the same position and under the same circumstances, in furtherance of an express power of direction. Now, you may be asking, “Why would the grantor appoint an additional person to act on behalf of the trust when they have already appointed a trustee?” Well, the answer is likely because the grantor wants more in control over how their assets are managed, invested, and distributed. For example, the grantor may want their accountant or financial planner to manage their investments or the grantor may want a neutral third-party distributing funds to beneficiaries. While the trustee is appointed to administer the trust and carry on its fiduciary duties to the beneficiaries, the trustee may lack expertise in areas that would be better left to professionals or other trusted individuals. The trust director is limited in their ability to act on anything other than the stated powers in the trust, whereas the trustee can administer the trust fully.
How the Trustee and Directed Trustee work together…
Interestingly enough, these two positions must work together in order to effectuate the purpose of creating the FUDTA. More specifically, the trustee gains a new responsibility when administering the trust. Now, the trustee has the duty to inform, monitor, and advise the trust director to the extent that such information is reasonably related to the power of the trust director. It is critical to note the liability between these two roles. To be exact on liability, the new Florida statute states that if either the trustee or trust director act on reliance of information provided by the other, they are not liable for a breach of trust to the extent the breach resulted from the reliance, unless by acting, they engaged in willful misconduct. See Fla. Stat. §736.141. The trust director should also be advised that by serving in such a position, they are subjecting themselves to the personal jurisdiction of the Florida courts.
Directed Trusts would apply in these conditions…
The Florida Statute is very direct when expressing when these types of trusts would apply. Most importantly, the trust must provide for the power of direction. Secondly, the “principal place of administration” must be in Florida and must occur either after July 1, 2021 or if created before, then it must be with respect to decisions concerning the trust after such July 1, 2021. Thirdly, the trust director must also be located in Florida, either as a resident or via their principal place of business. (See Fla Stat. § 736.1403).
So is this really new?
As an estate planning professional, we have used this third party “direction” put into law through the FUDTA for many years already. The concept itself is not new to the estate planning world. We have been naming “Business Trustees”, “Investment Managers”, “Trust Protectors”, as well as a myriad of other titles within trust instruments for a while now. The response in the state of Florida by way of the new FUDTA appears to be just that…a response to putting into law what professionals in this field have already been drafting within their trusts. The law now makes it clearer for fiduciaries and “directors” involved in the trust administration process where liability may lie when decisions are made.