The consequence the statute leaves unstated
Read on its own, this section is a housekeeping list. It says the Act does not apply to certain powers, and stops.
What it does not say is what follows, and the article written by the chair of the drafting committee says it in one line.
Principal among the effects of such exclusion is that the power holder is not subject to any fiduciary duty unless otherwise imposed by the trust terms.
Rubin and Rubin, The Florida Bar Journal, March/April 2022.
That is the whole point of the section. Under section 736.1408 a trust director is a fiduciary judged as a trustee. Fall inside this list and none of that applies. The difference between being on the list and off it is the difference between owing a trustee’s duty and owing nothing.
What is excluded
- A power of appointment. Historically a nontrustee holding one held a personal power carrying no fiduciary duty, and the Act preserves that.
- A power to appoint or remove a trustee or trust director. The classic protector power, and it is outside the Act.
- A settlor’s power over a trust while it is revocable by that settlor.
- A beneficiary’s power, to the extent its exercise or nonexercise affects that beneficiary’s own interest, or the interest of another beneficiary represented by them under the representation provisions in Part III.
- A power the trust states is held in a nonfiduciary capacity, where it must be so held to achieve the settlor’s tax objectives.
- A power to reimburse the settlor for income tax attributable to trust income.
- A power to add or release a power where doing so affects whether the settlor is treated as owner for federal income tax purposes.
The last three are one idea. Grantor trust planning depends on a settlor holding or a director exercising powers without fiduciary constraint, and the article is explicit that the techniques do not work otherwise.
This provision is to allow for the availability of grantor trust treatment for federal income tax purposes to a settlor via certain common tax planning techniques (which do not function if the power holder has a fiduciary duty regarding that power).
Rubin and Rubin, The Florida Bar Journal, March/April 2022.
The fine line, and it is easy to get backwards
Subsection (3) classifies two similar sounding powers in opposite directions, and the difference decides whether the holder is a fiduciary.
A power to designate a recipient of an ownership interest in trust property, including a power to terminate a trust, is a power of appointment, and so excluded.
A power to create, modify or terminate a power of appointment is a power of direction, and so covered, with fiduciary duties attached. The article explains the reasoning.
That is, a direct power of appointment over property is materially different than a power that does not directly impact property, but instead is a power to create, modify, or terminate a power of appointment, and it was determined that the broad authority under the latter warranted the imposition of fiduciary duties on the power holder.
Rubin and Rubin, The Florida Bar Journal, March/April 2022.
There is then a carve out from the carve out. Where a traditional power of appointment includes the ability to appoint into a new trust, and that new trust contains a new power of appointment, the power to create it remains part of the excluded power of appointment. It cannot be exercised separately from the appointment itself.
Opting back in is deliberately hard
The exclusions apply unless the terms of a trust expressly provide otherwise by specific reference to this part, section, or paragraph.
That is a stricter drafting requirement than the Trust Code usually imposes. Elsewhere a contrary intent indicated by the terms is enough. Here the instrument must cite the provision. A clause saying the protector shall act in a fiduciary capacity, without more, is unlikely to satisfy it.
The reason is presumably that the exclusions carry tax consequences. A trust that accidentally made a tax sensitive power fiduciary could destroy the treatment it was designed around, so the Legislature required the settlor to say so unmistakably.
No court has construed this section
Our review found no citing decision, on a Florida court filter and nationwide, at every precedential status.
The open questions are practical. Whether a clause referring generally to Part XIV is specific enough to opt a single paragraph back in. How a court will classify a hybrid power that both designates recipients and modifies an appointment power. And whether a power described in the trust as nonfiduciary, but not in fact needed for any tax objective, falls within the fifth exclusion at all, since that exclusion is written in the language of necessity.