Florida Banking March 2022

The Act, however, provides the incentive by clarifying where fiduciary responsibility lies. The Act provides that a trust director shall be a fiduciary to the beneficiaries with respect to the powers it holds and a directed trustee, who only facilitates the trust director’s exercise of that power, shall incur reduced, secondary liability only to the extent of his willful misconduct when deciding whether to comply with the trust director’s directions. Accordingly, a directed trustee must take reasonable action to comply with a direction, but if compliance amounts to willful misconduct the directed trustee may be liable. That may sound simple, but in practice there will be pitfalls because what amounts to willful misconduct is not defined and will only become apparent in each set of circumstances. As the law of directed trust evolves, the landscape will be ripe with beneficiaries who may assume that, although a directed trustee followed a trust director’s instructions, the directed trustee had a similar but independent power under the trust that if exercised prudently could have mitigated the loss caused by the trust director’s actions or inaction. This means vague descriptions of powers can be costly. Trust terms that are contrary to the Act may also cause confusion. A directed trust may place a heightened fiduciary standard on the directed trustee, for example, by imposing a negligence standard instead of willful misconduct. Conversely, a trust may decrease a trust director’s fiduciary responsibility. Regardless, exclusionary clauses eliminating all fiduciary responsibility generally remain unenforceable in Florida. Directed trusts may not appear obvious on their face either. They are unlikely to specifically reference a trust director, trust advisor, trust protector or directed trustee, but instead may only describe a non-trustee’s power. Consequently, a directed trustee must read the trust carefully to assure that a trust director actually has a power before following directions related to that power. The Act requires it. The Act also establishes that there are certain powers that will not be considered directed powers unless the trust expressly identifies them, such as the power to appoint or remove a trustee. While an indemnification provision might be one way to effectively distinguish the respective fiduciary obligations of a trust director and directed trustee, a well-drafted trust that expressly delineates rights, duties and powers between the two and provides for a dispute resolution process between them should be the preferred choice. When the preferred choice is not available, there are still options. A directed trustee with doubts about its duty to comply with a trust director’s directives can apply to a court for guidance, and receive attorneys’ fees and costs from the trust for doing so. To prevent the filing of actions against them, directed trustees and trust directors can shorten the limitations period by giving appropriate notice to beneficiaries. Thanks in part to the work

of the Florida Bankers Association, the six-month limitations period set forth in section 736.1008, Florida Statutes, was extended to the directors, officers and employees of trustees and trust directors. Fiduciary obligations are not the only uncertainty the Act attempts to demystify. While all the questions the Act addresses are too voluminous to cover here, a few governing the relationship between the trust director and directed trustee are worth noting. The Act restricts a trust director’s power to release a trustee from liability. It also addresses how much information they must share. Information sharing is of critical importance when one cannot reasonably act without information from the other, for example, when one has the power to invest and the other has the power to distribute. The absence of trust terms addressing this key issue has been a significant source of litigation, which the Act attempts to assuage by requiring the trust director and directed trustee to provide information to each other when reasonably related to the other’s powers or duties and their own duties. There is also a safe harbor provision that prevents liability for one’s reliance on information provided by the other, unless acceptance of the information amounts to willful misconduct. As to obligations to the beneficiary, a trust director must provide information within the trust director’s control to a qualified beneficiary upon written request to the extent the information is reasonably related to the trust director’s power or duties. The directed trustee’s obligations to inform beneficiaries remain the same as a traditional trustee. However, unless the trust provides otherwise, a directed trustee has no duty to monitor a trust director or advise beneficiaries of instances when the directed trustee might have acted differently than the trust director. Overall, the Act offers significant clarity on specific issues, but there are others that must be explored to fully appreciate who is responsible if something goes wrong. For example, tax and federal benefit eligibility issues (which are beyond the scope of this article) must also be examined. What can be most clearly discerned from the Act is that a directed trust clearly delineating the rights and duties of the trust director and directed trustee is the best way to assure you can answer the question – “who is responsible if something goes wrong?” Kelly O’Keefe is a Shareholder in Stearns Weaver Miller’s Tallahassee office. She represents professional and family member fiduciaries in complex and high stakes estate, probate and trust disputes and litigation. Kelly is the Vice Chair of the Tallahassee Regional Estate Planning Council, and a subcommittee Chair for the Florida Probate Rules Committee. She is regularly recognized by The Best Lawyers in America, Florida Trend and Super Lawyers magazines and is AV Preeminent Rated by Martindale-Hubbell. You can reach Kelly at kokeefe@stearnsweaver.com.

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