I previously posted here the text of new legislation proposed by the Florida Bankers’ Association to allow “directed trusts” in Florida. This type of legislation would allow Florida banks and trust companies to assume no fiduciary liability for those trusts where they assume very limited administrative trust duties and focus solely on managing the trust’s portfolio.
The inter-state “trust legislation” market is headed in the direction of directed trusts, lead as usual by Delaware, so it’s only a matter of time before Florida adopts its version of the statute. Here’s a link to an excellent white paper explaining Delaware’s directed trust statute.
A recent article entitled Family trusts branch out addressed the growing prevalence of directed-trust legislation and, most importantly, contained a few nice Florida references and quotes on the subject. Here’s an excerpt from the linked-to story:
Experts estimate that by the middle of this century, the largest intergenerational wealth transfer in the United States – more than $41 trillion – will have taken place.
Competing to capture the lucrative family trust business, states are revamping their trust statutes to offer tax breaks and encourage the use of multiple trust advisers. So far, 20 states have adopted the Uniform Trust Code, which allows trustees to delegate duties to co-trustees and agents, and generally provides that trustees are exempt from liability for others’ actions, except in cases of a “serious breach of trust.”
About 10 states have adopted “directed trusts” statutes that specifically authorize the appointment of co-trustees and advisers for investment, management and distribution duties.
South Dakota and Delaware, which are considered to have the strongest directed trust statutes, eliminate liability for a trustee who follows instructions from an adviser appointed in the trust agreement to make investment or distribution decisions.
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Bruce Stone, a trusts and estates lawyer and shareholder at Goldman, Felcoski & Stone in Coral Gables, Fla., said directed trusts can . . . be used for running closely held family businesses.
“A corporate trustee doesn’t want to get involved in running a closely held business, and families don’t want corporate trustees interfering in a lot of their decisions,” he commented. “The solution is that with a directed trust, the corporate trustee only has to do certain things.”
Crain, of BNY Mellon Wealth Management, agreed: “The family wants a corporate trustee to do all the important things – like tax returns, compliance – so the directed trust is the answer, because by statute, you can relieve the trustee of liability and responsibility for holding those assets.”
Crain is the chair of a Florida Bankers’ Association Trust legislative committee, which expects to introduce a bill next year proposing a directed trustee statute in Florida.
“It’s a competitive issue,” she said. “I personally have lost trust business because Florida doesn’t have a directed trustee statute.”
Florida’s existing trust laws “don’t go far enough in insulating a trustee,” Crain said.
“You still have the duty to oversee, to monitor, to intervene,” she noted. “The directed trustee statutes in the few states that have strong ones are explicit as to the lack of responsibility on the part of the trustee for reviewing the actions of the investment manager.”