On June 29,2021, Governor Ron DeSantis signed legislation to create the Florida Uniform Directed Trust Act (FUDTA) and the Community Property Trust Act (CPTA). The legislation was effective July 1, 2021.
While existing legislation included provisions for directed trusts, the new FUDTA (Florida Statutes Sections 736.1401 to 736.1416) expands the law by including more expansive provisions regarding a trust director’s duties and liabilities; a directed trustee’s duties and liabilities, and the powers and provisions that aren’t subject to the rules regarding directed trusts unless the terms of the trust expressly provide otherwise, including powers of appointment (POAs) and powers to remove a trustee or trust director.
Clients looking to reduce trustee fees view directed trusts as a viable alternative. The duties and responsibilities are segregated between the trust director and the trustee, with the investment management of trust assets as the most common directed function. Other duties, such as decisions regarding discretionary distributions may also be directed.
In a fully directed trust, the trustee performs administrative functions while following the directions of the trust director. The intent of the law is to provide avenues to limit trustee liability. FUDTA replaces prior law which Florida attorneys and trust companies found deficient, making Florida more competitive with the trust laws of other states that have adopted some form of the Uniform Directed Trust Act.
Under FUDTA, the trust director can’t also be a trustee, and is subject to fiduciary duty in the exercise of the power of discretion in the same manner as a trustee. Like other provisions in Florida trust law, the trust may be drafted to reduce or increase the level of duty. FUDTA also:
- Defines the principal place of administration to include Florida if the trust so provides, and a trust director’s principal place of business or residence is in Florida.
- Excludes POA, power to remove a trustee or trust director and the powers of a settlor to amend or revoke the trust as those placing an individual in a trust director role.
- Limits the trustee liability for taking reasonable actions to comply with trust director direction. Unlike the UDTA and some other directed trust state statutes, the trustee must first assess whether a trustee direction is within the scope of the trust director’s powers before so complying.
- Requires the trustee to provide the trust director information reasonably related to its responsibilities, and the trust director to provide trustee with same.
- Excludes a trustee duty to monitor a trust director or inform a settlor, beneficiary, trustee or trust director that the trustee may have acted differently than a trust director in a given instance. The trust director also doesn’t have duties to monitor or inform those same parties.
- Subjects the trust director to the personal jurisdiction of Florida courts.
- Imposes a six-month statute of limitations on actions against trust directors.
In community property jurisdictions (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wyoming) each spouse in a marriage is considered to own a share of marital assets, including any financial or real assets acquired during the marriage. While Florida isn’t one of those states, the CPTA allows spouses to create community property by creating a valid community property trust, transferring property to that trust, and providing in the trust instrument that the property is community property under CPTA (Florida Statutes Sections 736.1501 to 736.1512).
For estate planners seeking to maximize the Internal Revenue Code Section 1014(b) step-up in tax cost basis adjustment at the death of the first spouse, CPTA may enable a full basis adjustment rather than a one-half for assets held in a joint trust that satisfies the CPTA requirements. The trust must:
- Expressly state that it’s a community property trust.
- Name at least one qualified trustee, a natural person residing in Florida, or a company authorized to have Florida trust powers.
- Be signed by both spouses in accordance with Florida law.
- Conspicuously declare a statutory warning of the legal consequences of signing the agreement at the beginning of the trust instrument. The language should closely mirror the statutory language and urge both spouses to seek independent advice regarding same.
CPTA may apply to both revocable and irrevocable trusts and provides that the surviving spouse may have the power to amend the trust with respect to his or her one-half of the property. The spouses need not be domiciled in Florida to settle a community property trust.
While many planners may attempt to use CPTA to obtain a full step-up in tax cost basis at the first spouse’s death, practitioners should note a United States Supreme Court case, Commissioner v. Harmon 323 U.S. 44 (1944). The Court held that an Oklahoma statute allowing couples to opt-in to a community property regime would not be recognized for federal income tax purposes. Moreover, the Internal Revenue Service takes the position that Harmon applies to the Alaska system for income reporting purposes. (See IRM 25.15.5 Relief from Community Property Laws.)