A familiar arrangement, finally governed
Trusts often appoint two or three trustees and then give one of them the real say over something. It might be a family member who controls distributions, a corporate trustee that holds everything else, or an investment adviser trustee with the final word on the portfolio.
The terms of a trust may provide for the appointment of more than one trustee but confer upon one or more of the trustees, to the exclusion of the others, the power to direct or prevent specified actions of the trustees.
Section 736.1412(1), Florida Statutes.
Note direct or prevent. A veto counts. A cotrustee who cannot make anything happen but can stop it is within this section.
The excluded trustee is a directed trustee
Subsection (2) does the transplant. The excluded trustees act in accordance with the exercise of the power in the manner, and with the same duty and liability, as directed trustees, importing section 736.1409, section 736.141 and section 736.1411.
All three matter. The excluded trustee must take reasonable action to comply and is protected for it, with a floor of its own willful misconduct. It owes and receives information on the reciprocal terms of section 736.141. And under section 736.1411 it has no duty to monitor the trustee directing it.
The reasoning is stated in the article by the Act’s drafting chair, and it is straightforward.
The draftspersons’ reasoning was that the trustee in both circumstances is being directed by another fiduciary and thus there is no justification for imposing different rules or standards on the trustee subject to direction based on whether the person giving direction is a trustee or a trust director.
Rubin and Rubin, The Florida Bar Journal, March/April 2022.
The sentence that decides who gets sued
The trustee or trustees having the power to direct or prevent actions of the excluded trustees shall be liable to the beneficiaries with respect to the exercise of the power as if the excluded trustees were not in office and shall have the exclusive obligation to account to and to defend any action brought by the beneficiaries with respect to the exercise of the power.
Section 736.1412(3), Florida Statutes.
Three phrases do the work, and each is stronger than it looks.
As if the excluded trustees were not in office. The directing trustee cannot point at the others and say responsibility was shared. For this purpose they are not there.
Exclusive obligation to account. A beneficiary wanting an accounting about the exercise of the power goes to the directing trustee, and only to them.
And to defend. If the beneficiaries sue over the exercise of the power, the directing trustee carries the defence. The excluded trustee is not the right target.
So liability does not merely shift. It concentrates. That is a considerable thing for a family member who accepted a cotrusteeship thinking the corporate trustee was carrying the risk, and discovers that holding the power to direct means carrying it alone.
What changed, and what did not
Before 2021 this ground was held by former section 736.0703(9), which the same act deleted. The article records the position.
Because the FUDTA now addresses issues of fiduciary responsibility as they relate to co-trustees, prior F.S. §736.0703(9) was deleted. It is worth noting, however, that the “willful misconduct” standard of liability for the excluded trustee has not changed; it is just found in a different location.
Rubin and Rubin, The Florida Bar Journal, March/April 2022.
We checked that independently. Section 736.0703 today has no subsection (9), and the words willful misconduct do not appear in it. Its history line includes the 2021 act. The article is right.
So for the excluded trustee the standard is unchanged and only its address moved. That is different from the position of a directed trustee under section 736.1409, where the standard genuinely changed in 2021 from the former section 736.0808 test.
Reading it with the cotrustee section
This section does not displace section 736.0703, which still governs cotrustees generally, including the point cotrustees most often get wrong. Standing back while another trustee breaches the trust is not a defence.
The two fit together. Where a trust confers a power to direct or prevent, this section governs the exercise of that power and reallocates responsibility for it. Everything else the cotrustees do remains under section 736.0703 on ordinary terms.
That boundary is where a real dispute would be fought. An excluded trustee’s protection extends to acting in accordance with the exercise of the power. It does not obviously extend to what the excluded trustee does on its own initiative, and no decision has drawn the line.
No court has construed this section
Our review found no citing decision, on a Florida court filter and nationwide, at every precedential status. Part XIV took effect on July 1, 2021 and applies only to decisions or actions from that date, so five years is a short time for a dispute of this kind to reach a written opinion.
If you are being asked to serve as a cotrustee, the question worth asking before you accept is simple and this section answers it. Does the instrument give me the power to direct or prevent, and if so, am I willing to account and defend alone?