Why Florida wrote this statute
In 2001 Congress passed a law that phased down the federal estate tax and repealed it entirely for people who died during calendar year 2010, with the old rules scheduled to snap back in 2011. Most practitioners assumed Congress would act before the gap arrived. Congress did not, and for one year there was no federal estate tax.
That created a drafting emergency in slow motion. Enormous numbers of trusts divide property using formulas written in tax language, allocating to one share the largest amount that can pass free of estate tax and to another share the remainder. Those formulas are elegant while the tax exists. In a year with no estate tax the “largest amount that can pass free of federal estate tax” is everything, and the other share is nothing. Family plans built over decades could invert on a technicality of timing.
Florida responded with chapter 2010-122, which created this section. It is expressly remedial and expressly retroactive to January 1, 2010.
What the statute allowed
Upon the application of a trustee or any qualified beneficiary of a trust, a court at any time may construe the terms of a trust that is not then revocable to define the respective shares or determine beneficiaries, in accordance with the intention of the settlor, if a disposition occurs during the applicable period and the trust contains a provision that:
Appears to be intended to reduce or minimize federal estate tax or generation-skipping transfer tax.
Section 736.04114(1) and (1)(d), Florida Statutes. Paragraphs (a) through (c) list the specific formula language and are described below.
Subsection (1) lists the triggering language in detail, catching formula dispositions referring to the unified credit, the estate tax exemption, the applicable exemption amount, the applicable credit amount, the applicable exclusion amount, the generation skipping transfer tax exemption, the marital deduction in several formulations, and the maximum charitable deduction. Paragraph (d) then sweeps in any provision that simply appears intended to reduce or minimize those taxes.
The interpretive standard is the same one Florida uses elsewhere for these problems. Under subsection (3) the court considers the terms and purposes of the trust, the facts and circumstances surrounding its creation, and the settlor’s probable intent, and may consider evidence of intent even where that evidence contradicts an apparent plain meaning of the instrument.
Subsection (5) is the practical half of the statute and the part that probably did the most good. It let a trustee, without a court order, delay or refrain from making a distribution, incur and pay the fees and costs reasonably necessary to work out its duties including under reasonably anticipated future tax law, and establish reserves for those costs and for federal taxes. A trustee acting in good faith under that subsection is not liable for doing so. In other words, it told trustees facing an unresolvable formula that they could sit still.
The window, and why there is no case law
The statute defines its own expiry. The applicable period began January 1, 2010 and ended on the earlier of December 31, 2010 or the day before an act became law repealing or modifying section 901 of the 2001 federal Act. A disposition occurs, for this purpose, when an interest takes effect in possession or enjoyment.
So the statute reaches trusts where an interest vested in possession during calendar year 2010 and no others. Sixteen years later that is a closed set, and a shrinking one, since the disputes it was written for have long since been resolved or become untimely.
Our review found no Florida decision citing this section, in the state courts, the Florida federal district and bankruptcy courts, or the Eleventh Circuit. We publish that as a finding rather than a gap in our research. It is also, for once, an unsurprising zero. The statute had a one year trigger, it was designed to let parties fix things without litigating, and subsection (5) gave trustees explicit permission to wait rather than act. A remedial statute that works tends not to generate appellate opinions.
Why it is still worth reading
Because the underlying problem was never solved, only postponed. The federal estate tax exemption has moved repeatedly since 2010 and is scheduled to move again. Any trust that divides property by reference to a federal tax figure is a trust whose distribution depends on what Congress does, and the 2010 experience is the clearest illustration on record of what happens when the figure moves further than the drafter imagined.
Section 736.04114 is also a useful precedent in a different sense. It shows the Florida Legislature willing to authorize retroactive judicial construction of irrevocable trusts to rescue settlor intent from a federal tax change. If a comparable dislocation arrives, this is the template.