On June 29, 2021, Governor Ron DeSantis signed into law Senate Bill 1070, known as the Florida Uniform Directed Trust Act (the “Act”), which expands Florida’s directed trust laws. A directed trust is a trust that appoints a third-party (often called a trust director or trust protector) to provide direction to a trustee regarding trust administration issues, such as investing the trust funds and distributing those funds to the beneficiaries. While pre-existing Florida law permitted directed trusts, the Act includes expansive provisions that address the duties and liabilities of a trust director and trustee. The Act also permits community property directed trusts, as discussed below. The administration of a trust can be more evenly managed by a trust director and trustee, which may reduce trustee fees. The Act also provides married persons access to privileges that are traditionally reserved for community property residents.
In “community property” states, married couples are generally required to equally split assets acquired during their marriage. Florida is not a community property state. However, the Act allows spouses to create community property by creating a community property trust, designating property as community property and transferring that property to the trust. Property contributed to the trust that is designated as community property will receive a step-up in tax basis upon the death of the first spouse. Upon the first spouse to pass away, a step-up in tax basis is generally only afforded to the surviving spouse residing in community property states.
We commonly speak with clients who identify a friend or family member that they wish to appoint as trustee of a trust because that person knows their family dynamics and they trust the person but the sentiment is often followed by a concern, such as a lack of investment skill. A directed trust allows the creator of a trust to appoint that friend or family member as the trustee and nominate someone else to serve as an investment advisor. We also receive concerns from clients who have a beneficiary with special needs. While a trustee may have knowledge about the intricacies of qualifying for government benefits, someone else may be better suited to provide guidance about a beneficiary’s special needs. Additionally, a directed trust may allow small business owners to nominate a person with familiarity about the business to control decisions about the business.
A trust must adhere to several requirements under the Act before it may qualify as a community property trust and every married couple’s situation is unique. Consultation with an experienced estate planning attorney is imperative in determining whether a community property trust should be incorporated into your estate plan.
Michael Salad is a partner in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate planning, business transactions, mergers and acquisitions, tax matters and probate administration. Michael holds an LL.M. in Estate Planning and Elder Law and is licensed to practice law in Florida, New Jersey, New York, Pennsylvania, Maryland, Connecticut and the District of Columbia. Michael may be reached at (954) 889-1850 or via e-mail at email@example.com Craig Panholzer is an associate in Cooper Levenson’s Business & Tax practice group in its Florida office. He concentrates his practice on business transactions, cyber risk management, estate planning, probate and tax matters. Craig may be reached at (954) 889-1856 or via e-mail at firstname.lastname@example.org.