The Florida Trust Code: What a Trustee Should Know about this New Legislation

On July 1, 2007, the Florida Trust Code took effect. While this was an important event here in our office, there’s a good chance that this is the first time you have heard about it. The Florida Trust Code was not front-page news and was probably not something that you and your friends discussed at a dinner party. Nevertheless, it is important to be informed about the new law since one day you may be a trustee or a beneficiary of a trust with certain rights and responsibilities.

I should mention that the Florida Trust Code is not a wholesale change from our existing body of trust law. In fact, many of the new statutes are similar or identical to the old ones. However, if you are currently serving as a trustee, the Florida Trust Code contains some new options for you as well as some new requirements with which you must comply.

As trustees, it would be wise to familiarize yourself with the entire Florida Trust Code. However, since the new body of law is extensive, a summary of the important points would be beneficial.

To help you understand the new trust statutes, this article will lay out five key provisions that every trustee should know about.

1. Mandatory Accountings for Certain Trusts

The new law requires trustees of irrevocable trusts to provide annual trust accountings to qualified beneficiaries. A trust accounting is a report showing all significant transactions affecting the trust and identifying and valuing trust assets on hand at the time. This report must be provided to qualified beneficiaries, who are those who are currently receiving trust income or principal, as well as those who would receive trust income or principal if either the current interests ended today or if the trust terminated today. If you are the trustee of an irrevocable trust and if the beneficiaries have not waived their right to receive annual accountings, you should ensure that these reports are provided each year.

2. Certifications of Trust

As trustees, many of you have likely been in a situation where you were trying to act on behalf of the trust and were delayed by somebody who didn’t want to deal with you without making sure that you had the authority to act. This person may have been someone as trustworthy as a banker with whom you wanted to invest, or someone as unknown as a person who was thinking of purchasing a partnership interest held by the trust. Often, these people will ask to see a copy of the trust document to make sure that you are acting properly. Understandably, you might be hesitant to provide such a private document to a stranger.

The Florida Trust Code provides a solution for these situations, by allowing for you to provide a “Certification of Trust.” This document provides all of the relevant information that the other person needs to know such as the date of the trust, the identity of the settlor, and the identity and powers of the trustee. However, the Certification omits much of the private information that does not need to be public knowledge. Under the new law, a third party who relies on the Certification in dealing with the trustee is relieved from any liability for so acting. This makes the Certification an extremely valuable document.

3. Termination of Uneconomic Trusts

Many of you might find yourselves in a situation where the value of the trust is insufficient to justify the trust’s administrative costs. The Florida Trust Code provides a couple of solutions for these situations. If the value of the trust is less than $50,000, the trustee can terminate the trust by simply notifying the beneficiaries. Even if the trust value exceeds $50,000, the trust can still be terminated upon an application to the court by the trustee. If you believe that you are in this type of situation, it is worthwhile to examine the uneconomic trust provisions to see if they might be helpful.

4. Combination and Division of Trusts

Under the Florida Trust Code it has become easier for a trustee to combine two trusts into one and to separate one trust into multiple trusts. In the past, a trust combination could only occur if the terms of the trusts were identical or similar. Now, the trustee can take these actions as long as no beneficiary’s rights are impaired and the trust purposes are not adversely affected. A trust combination might be used to reduce administrative costs, as it is much easier to operate one trust as opposed to multiple trusts. A trust division can be an effective tool to help the trustee manage investments where beneficiaries have different investment goals.

5. Movement of Trust’s Principal Place of Administration

Under the Florida Trust Code, upon notice to the beneficiaries, the trustee is permitted to transfer the trust’s principal place of administration to another state or to a jurisdiction outside of the United States. The only restriction is that the administration must be at a place that is appropriate to the trust’s purposes. This generally requires a sufficient connection with the designated jurisdiction. If you, as the trustee, are planning to move to another state, however, it is possible that a court would allow you to move the trust’s principal place of administration to that other state. This may or may not be desirable depending on the laws of the state to which you are moving.

Those of you currently serving as trustees are already aware that your role is not a passive one. Acting as a fiduciary over someone’s property is an important job that is not to be taken lightly. Among other tasks, your responsibilities in this role also include monitoring the latest laws to ensure that you are doing your job properly. In this regard, it is important that you familiarize yourself with our state’s new body of trust law.

For further information regarding this article, please contact JeffTroiano at 941-329-6638 or jtroiano@williamsparker.com.