Start with the part that is actually Florida law
Most of this section points at the Internal Revenue Code. Subsection (1) does not, and it is the provision a Florida court would be most likely to apply.
In the exercise of a trustee’s powers, including the powers granted by this part, a trustee has a duty to act with due regard to the trustee’s obligation as a fiduciary, including a duty not to exercise any power in such a way as to:
(a) Deprive the trust of an otherwise available tax exemption, deduction, or credit for tax purposes;
(b) Deprive a donor of a trust asset or tax deduction or credit; or
(c) Operate to impose a tax on a donor, trust, or other person.
Section 736.1204(1), Florida Statutes. The section adds that tax includes, but is not limited to, any federal, state or local excise, income, gift, estate or inheritance tax.
Read paragraph (b) again. The duty runs partly for the benefit of a donor, and a donor is not a beneficiary. In ordinary trust law a trustee owes duties to beneficiaries; here the trustee must also avoid acting in a way that costs the person who gave the money their deduction.
Paragraph (c) is wider still, reaching a tax imposed on a donor, trust, or other person. Whatever else this section does, it tells a trustee that the tax consequences of an exercise of power are a fiduciary matter and not merely an accounting one.
The payout rule
Subsection (2) requires a trustee of a private foundation trust to make distributions at such time and in such manner as not to subject the trust to tax under section 4942 of the Internal Revenue Code, which is the provision taxing a foundation’s failure to distribute income.
Note that it is drafted as an obligation to avoid the tax, not as a fixed percentage. Florida does not state the payout figure; it borrows whatever federal law requires from time to time, which is a sensible way to write a statute that would otherwise need amending whenever Congress moved.
The four prohibitions
Subsection (3) is the heart of the federal private foundation regime, restated as trust duties. It lists four things a trustee of a private foundation trust, or of a split interest trust to the extent it is subject to section 4947(a)(2) of the Internal Revenue Code, must not do.
- Engage in any act of self dealing as defined in section 4941(d).
- Retain any excess business holdings as defined in section 4943(c).
- Make any investments in a manner that subjects the foundation to tax under section 4944, the jeopardising investment provision.
- Make any taxable expenditures as defined in section 4945(d).
Each is defined by federal law, and we are not going to summarise federal tax law on a page about a Florida statute. What matters here is the structural point. These are not merely tax rules that a foundation may weigh against other considerations. Florida has made them duties of the trustee, enforceable as such, whether or not the trust document mentions them.
Self dealing is the one that catches people in practice, because a family foundation is usually run by the family, and transactions between the foundation and the people who created it are exactly what the prohibition addresses.
The carve out, and the escape hatch
Subsection (4) removes the excess business holdings and jeopardising investment prohibitions for certain split interest trusts. The test is technical and it is measured. It turns on whether all the income interest and none of the remainder interest is devoted to charitable purposes and the deducted amounts do not exceed sixty percent of the aggregate fair market value of all amounts in the trust, or alternatively on whether a deduction was allowed for amounts payable to every remainder beneficiary but no income beneficiary.
That is a calculation rather than a judgement, and it is one for the foundation’s tax advisers. We note that the carve out exists and that it applies only to two of the four prohibitions.
The broader escape is elsewhere. Section 736.1205 provides that this entire section does not apply to a trust for which the required notice has been given to the Attorney General, unless the trust is amended to comply. And section 736.1202 opens the whole Part with the words except as otherwise provided in the trust, so a governing instrument can displace it.
No Florida court has cited this section, and there is a reason
Our review found no citing decision at all. Because ten consecutive sections in this Part returned nothing, we tested the search itself before reporting it. We confirmed every query returned a count rather than an error, ran the identical query against two sections known to have case law and got six hits from each, and searched our own files independently. The zeros are real.
The explanation is structural rather than surprising. The consequences of breaching these rules are federal excise taxes. A trustee who engages in self dealing faces the Internal Revenue Service, not a Florida circuit court, and a dispute about it is resolved in the federal tax system, which does not cite Florida statutes.
That is emphatically not a reason to treat the section as unimportant. The absence of Florida case law is the absence of Florida case law. The rules themselves are enforced vigorously, and the penalties are real.
We also decline to do something tempting here. There is a substantial body of federal authority on sections 4941 through 4945. That authority is about those federal provisions. It is not authority on this Florida section, even though this section points at them, and we do not present it as though it were.