Why did trust law become statute law in the United States?
Because in today’s world the most common trust asset is a diversified portfolio of marketable securities. Uniform legislation involving trusts, which culminated in the Uniform Trust Code ("UTC"), which was adopted by Florida effective July 1, 2007 [click here], was needed to "clear away" centuries of common law that worked when trusts usually only held real property, but clearly did NOT work when it came to managing investment portfolios.
In his recently published article entitled Why Did Trust Law Become Statute Law in the United States? Prof. John H. Langbein of Yale Law School explains how codification of trust law facilities trustee management of the modern investment portfolio, and overrides common law governing trusts to the extent its inconsistent with modern portfolio management.
Trustees: what can the the new Florida Trust Code do for you?
In order to take full advantage of the new Florida Trust Code’s default rules, Florida trustees need to understand how they simplify trust administration in Florida. Prof. Langbein’s linked-to article provides the following road map for figuring out how the Florida UTC makes life easier for Florida trustees. (I’ve cross-referenced Prof. Langbein’s UTC citations to the new Florida Trust Code.)
- Transaction Empowerment
- Allocating Expenses and Receipts
- Facilitating Pooled Investments
- Fiduciary Investing
1. Transaction Empowerment
Historically, third parties doing business with trustees had a duty to independently verify that the trustee was authorized to enter into the subject transaction. Florida UTC section 736.1016 eliminates this duty. Historically, trustees were very limited in their authority to engage in business transactions. A primary goal of new uniform trust legislation was to equip trustees as a matter of default law with essentially unlimited transaction authority. Florida UTC sections 736.0815 and 736.0816 codify this regime.
2. Allocating Expenses and Receipts
A trust containing financial assets requires the trustee to pay a great deal of attention to apportioning the receipts and expenses of a trust between or among different classes of beneficiaries (typically life and remainder interests). Codifying fiduciary law on this point allowed for the development of sound default rules for allocating such such receipts and expenses. A prefatory note to the UTC recognizes that the Uniform Principal and Income Act ("UPI") accomplished this goal, and that "a jurisdiction enacting the revised Uniform Principal and Income Act may wish to include it either as part of this Code or as part of its probate laws." Florida incorporated its version of the UPI into stand alone Chapter 738 of the Florida Statutes.
3. Facilitating Pooled Investments
Historically, trustees were barred from pooling funds from different trusts for investment purposes. In today’s world, pooling trust-fund investments via mutual funds and other similar financial products needed to build an adequately diversified investment portfolio is a must. Florida UTC section 736.0802(g) facilitates mutual-fund investing by expressly overriding existing common law and authorizing bank trust departments to invest in affiliated mutual funds.
4. Fiduciary Investing
Historically, trustees were very limited in the types of assets they could invest in. Again, this approach makes perfect sense if most trusts only own real property, it simply does not work in a world where most trusts are invested in marketable securities and managed in accordance with the "modern portfolio theory." Florida UTC section 736.0901 recognizes that the Florida Uniform Prudent Investor Act previously overrode the common law on this point by simply cross referencing to Florida Statutes Chapter 518.