Florida Family Trust Company Improvements On the Way

The Florida Family Trust Company Act Gets a Makeover

Making its way through Florida’s House of Representatives is HB 825, along with its companion bill in the Florida Senate, SB 568. This bill is informally known in Florida Bar circles as the Family Trust Company Act “glitch bill.” The glitch bill fixes a number of issues in the original FTC bill enacted June, 2014.

The glitch bill has been anticipated since before that enactment, and that expectation was the main reason for the Act’s October 1, 2015 effective date (more on this below). The following is a summary of key provisions of the glitch bill, which if enacted, would simply become part of the Florida Family Trust Company Act in its entirety.FL Family Trust Company Glitch Bill

(If you can’t see the entire post, click “Continue Reading” below).

The glitch bill does improves the FTC Act by doing the following:

Clarifying that a “plain” or non-licensed Family Trust Company is generally not subject to regulatory oversight by Florida’s Office of Financial Regulation, beyond making sure the FTC serves only its founding family.

This is a big clarification from the original bill and represents OFR’s acknowledgment that these non-licensed entities do not need regulation. The analogy here is that non-licensed FTCs are similar to individual trustees, who are free to go about their business without governmental oversight.

The relevant statute will now read:

“[OFR] is not responsible for examining a [non-licensed] family trust company or a foreign licensed family trust company regarding the safety or soundness of its operations.”

A couple of notes here: (a) “safety and soundness” is the regulatory term of art used to describe OFR’s responsibility to oversee financial institutions, as used throughout the Financial Institutions Codes; and (b) foreign licensed FTCs are excluded from regulatory oversight because they remain subject to it in their home state.

Clarifying that the FTC may “elect” to be subject to OFR oversight by applying for licensure as a licensed family trust company.

This is an important distinction in the revised statutes that emphasizes the family is choosing regulatory oversight by asking to be licensed. Why is the distinction important – and why would anyone choose to do this? For several reasons, including exemption from the SEC’s investment adviser registration rules, as well as some estate tax protection for trust grantors. More on this topic here.

Clarifying that the FTC is not subject to the Financial Institutions Codes regulating banks and trust companies that serve the general public.

This clears up some inconsistencies in the original bill, which included some confusing references to the Florida Institutions Codes. The FTC statutes were never intended to be part of the Florida Financial Institutions Codes, indeed, the purpose of enacting the FTC bill was to exclude FTCs from the definition of “financial institution” and create separate rules. Again, this separate treatment is required because FTCs do not serve the general public.

Relaxing OFR audit requirements.

This is a big one. When the original bill was drafted, non-licensed FTCs were never intended to be subject to OFR oversight (see above). Of course, oversight means regular reviews and audits, to which the proponents of non-licensed FTCs are generally opposed. As noted above, there is no public interest served in auditing a family-owned FTC which serves only that family.

The revised statutes make clear that non-licensed FTCs are not subject to regular examination and audit by OFR. A couple of points here:

  1. the FTC is still subject to its fiduciary duties to the beneficiaries, not mention the jurisdiction of the relevant court, just as an individual trustee would be; and
  2. OFR does have the right to examine the FTC to make sure it has not violated either of:
    • Florida Statutes section 662.131, which prohibits the FTC from providing banking services, serving the general public, or serving as a Florida personal representative or agent under a Florida power-of-attorney (more on this “mistake” below); or
    • Florida Statutes section 662.134, which prohibits the FTC from advertising its services to the public (presumably, to be “extra-extra” clear).

As for licensed FTCs, the revised audit statute now provides that OFR will conduct an audit of these FTCs at least every 36 months, a much-welcome improvement from the original 18-month requirement. Again, this audit requirement is for licensed FTCs only, which have specifically chosen and applied for this regulatory oversight.

Confirming and clarifying requirements for existing FTCs.

There are a few FTCs already operating in Florida, having received special permission letters from OFR over the years (and perhaps even a few that have no such permission). This revised statute make clear that that these entities have a December 31, 2015 deadline to: (a) register as a family trust company; (b) register as a foreign licensed family trust company; (c) apply to become a licensed family trust company; or (d) cease operations.

The original bill provided for 90 days from the October 1 effective date, or December 29th, and the provision was ambiguously buried in a section dealing with registering foreign licensed FTCs. Here’s guessing someone will be glad to have those extra 2 days at the end of the year.

Clarifying that OFR does not get to pre-approve changes to bylaws.

A minor change, but one that makes sense. If the FTC is a corporation, bylaws will not have to be submitted to OFR for approval when they are changed. The original bill required that due to a mystery addition to the draft late in the legislative process. Observers noted that corporations should be free to amend their bylaws without permission. FTCs still need pre-approval for changing their charter documents such as articles of incorporation (corporations) or articles of organization (LLCs).

Taking away OFR’s power to determine “breach of trust or fiduciary duty.”

The original bill, again, via mystery last-minute amendment, mistakenly granted OFR the power to take various actions upon its finding that the FTC breached a fiduciary duty. The revised statute now properly requires that a court make the finding of a breached duty before OFR’s action in this regard.

Several other technical fixes are made, including:

  • Granting an extra 15 days to file annual renewal applications (by 2/14 each year instead of 1/30);
  • Clarifying who may sign applications and statements (replacing some confusing references to “executive officers” and “officers” with “authorized person”);
  • Clarifying when and how the FTC may purchase securities issued by a business owned by its founding family;
  • Adding an automatic reinstatement where an FTC’s registration or license is administratively revoked for missing the renewal deadline – must submit the renewal with a $500 late fee and a fine to be determined by OFR, by August 31 of the same year; and
  • Updating various statute section cross-references.

Florida Family Trust Company Act  — Now Even More Complete!

Members of the drafting subcommittee began to realize at the beginning of 2014 that this “glitch bill” would be necessary. A number of unintended provisions snuck their way into the original bill as part of OFR and last-minute legislative committee wrangling. We knew that with a little more time and explanation we could, for example, explain that there is no need for OFR to audit non-licensed FTCs.

In fact, the effective date of the original bill was pushed out to October 1, 2015 for exactly this reason. We felt that if we got the glitch bill enacted in time, then a complete set of statutes would be ready in time for the October 1, 2015 effective date.

What’s Next, or, What’s Still Missing?

There will likely be tweaks and additions to the Act in future years, as families begin to form these things and we find other areas that need clarifying or addressing. In particular, this author believes Florida FTCs, like their counterparts in other states permitting FTCs, should have full “trust powers.” Currently, a Florida FTC is forbidden from serving as a personal representative of a Florida estate or as an agent under a Florida power of attorney.

These powers were included in the original bill draft. However, they were objected to at the last minute by members of the Bar’s Real Property Probate & Trust Law Section. These members felt those provisions would “open the floodgates” for other (read, “undesirable”) people and entities to qualify as personal representatives and agents in Florida. So, the offending powers were struck in an effort to keep the baby safely floating in the bathwater.

As a result we have a trust company with something less than trust powers in Florida – absurdly, a Florida FTC will actually have these powers in any other state! Hopefully targeted bills will address these shortcomings in the near future. But at the moment we have the makings of a strong foundation for family trust companies to be formed in and moved to Florida.

Bill Status, as of March 31, 2015:

The glitch bill is moving through the various legislative committees with no noted opposition, as the FTC Act is generally viewed as likely to bring wealthy families and their trusts to Florida. Assuming no glitches with the glitch bill, it will likely pass the legislature by the end of April, 2015 and be signed by the governor in June, 2015.

How Can Oakstone Law Help?

Oakstone Law’s founder Bob Kleinknecht has been an integral part of building the Florida Family Trust Company legislation which became law in June, 2014. He is a key member of the Florida Bar’s Family Trust Company Subcommittee of the Estate and Trust Tax Planning Committee. Working on the Subcommittee with a number of other influential attorneys in the state of Florida, and with Florida’s Office of Financial Regulation, Bob has helped craft legislation that will give families the opportunity to create their own family trust company (FTC) right here in Florida.

Bob has also worked with FTC professionals in New Hampshire, Nevada and South Dakota, learning the ins and outs of the setup, structures and mechanics. Now that the FTC is finally coming to Florida, we expect a number of families will decide that Florida has more to offer than these other jurisdictions and move their existing FTC to Florida or create a new FTC in the state. We are ramping up to be ready for this exciting opportunity.

For more information on Florida Family Trust Companies, and to download our free whitepaper, Family Trust Companies in Florida, click here.

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Naples, Florida 34109
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