§ 738.203 — Fiduciary’s power to adjust

Florida § 738.203

• Jurisdiction: Florida
• Title: XLII
• Ch. 738: UNIFORM FIDUCIARY INCOME AND PRINCIPAL ACT

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(1) Except as otherwise provided in the terms of a trust or this section, a fiduciary, in a record without court approval, may adjust between income and principal if the fiduciary determines that the exercise of the power to adjust will assist the fiduciary in administering the trust or estate impartially.

(2) This section does not create a duty to exercise or consider the power to adjust under subsection (1) or to inform a beneficiary about the applicability of this section.

(3) A fiduciary that in good faith exercises or fails to exercise the power to adjust under subsection (1) is not liable to a person affected by the exercise or failure to exercise.

(4) In deciding whether and to what extent to exercise the power to adjust under subsection (1), a fiduciary shall consider all factors the fiduciary considers relevant, including relevant factors in s. 738.201(5) and the application of ss. 738.401(9), 738.408, and 738.413.

(5) A fiduciary may not exercise the power under subsection (1) to make an adjustment or under s. 738.408 to make a determination that an allocation is insubstantial if: (a) The adjustment or determination would reduce the amount payable to a current income beneficiary from a trust that qualifies for a special tax benefit, except to the extent that the adjustment is made to provide for a reasonable apportionment of the total return of the trust between the current income beneficiary and successor beneficiaries; (b) The adjustment or determination would change the amount payable to a beneficiary, as a fixed annuity or a fixed fraction of the value of the trust assets, under the terms of the trust; (c) The adjustment or determination would reduce an amount that is permanently set aside for a charitable purpose under the terms of the trust unless both income and principal are set aside for the charitable purpose; (d) Possessing or exercising the power would cause a person to be treated as the owner of all or part of the trust for federal income tax purposes and the person would not be treated as the owner if the fiduciary did not possess the power to adjust; (e) Possessing or exercising the power would cause all or part of the value of the trust assets to be included in the gross estate of an individual for federal real estate tax purposes and the assets would not be included in the gross estate of the individual if the fiduciary did not possess the power to adjust; (f) Possessing or exercising the power would cause an individual to be treated as making a gift for federal gift tax purposes; (g) The fiduciary is not an independent person; (h) The trust is irrevocable and provides for income to be paid to the settlor and possessing or exercising the power would cause the adjusted principal or income to be considered an available resource or available income under a public-benefit program; or (i) The trust is a unitrust under ss. 738.301-738.310.

(6) If paragraph (5)(d), paragraph (5)(e), paragraph (5)(f), or paragraph (5)(g) applies to a fiduciary: (a) A cofiduciary to which paragraphs (5)(d)-(g) do not apply may exercise the power to adjust, unless the exercise of the power by the remaining cofiduciary or cofiduciaries is not permitted by the terms of the trust or law other than this chapter; or (b) If there is no cofiduciary to which paragraphs (5)(d)-(g) do not apply, the fiduciary may appoint a cofiduciary to which paragraphs (5)(d)-(g) do not apply which may be a special fiduciary with limited powers, and the appointed cofiduciary may exercise the power to adjust under subsection (1), unless the appointment of a cofiduciary or the exercise of the power by a cofiduciary is not permitted by the terms of the trust or law other than this chapter.

(7) A fiduciary may release or delegate to a cofiduciary the power to adjust under subsection (1) if the fiduciary determines that the fiduciary’s possession or exercise of the power will or may: (a) Cause a result described in paragraph (5)(a), paragraph (5)(b), paragraph (5)(c), paragraph (5)(d), paragraph (5)(e), paragraph (5)(f), or paragraph (5)(h); or (b) Deprive the trust of a tax benefit or impose a tax burden not described in paragraph (5)(a), paragraph (5)(b), paragraph (5)(c), paragraph (5)(d), paragraph (5)(e), or paragraph (5)(f).

(8) A fiduciary’s release or delegation to a cofiduciary under subsection (7) of the power to adjust under subsection (1): (a) Must be in a record; (b) Applies to the entire power, unless the release or delegation provides a limitation, which may be a limitation to the power to adjust: 1. From income to principal; 2. From principal to income; 3. For specified property; or 4. In specified circumstances. (c) For a delegation, may be modified by a redelegation under this subsection by the cofiduciary to which the delegation is made; and (d) Subject to paragraph (c), is permanent, unless the release or delegation provides a specified period, including a period measured by the life of an individual or the lives of more than one individual.

(9) Terms of a trust that deny or limit the power to adjust between income and principal do not affect the application of this section, unless the terms of the trust expressly deny or limit the power to adjust under subsection (1).

(10) The exercise of the power to adjust under subsection (1) in any accounting period may apply to the current period, the immediately preceding period, and one or more subsequent periods.

(11) A description of the exercise of the power to adjust under subsection (1) must be: (a) Included in a report, if any, sent to beneficiaries under s. 736.0813; or (b) Communicated at least annually to the qualified beneficiaries as defined in s. 736.0103 other than the Attorney General.

(12) With respect to a trust in existence on January 1, 2003: (a) A fiduciary may not have the power to adjust under this section until the statement required in subsection (13) is provided and either no objection is made or any objection which is made has been terminated. 1. An objection is made if, within 60 days after the date of the statement required in subsection (13), a super majority of the eligible beneficiaries deliver to the fiduciary a written objection to the application of this section to such trust. An objection shall be deemed to be delivered to the fiduciary on the date the objection is mailed to the mailing address listed in the notice provided in subsection (13). 2. An objection is terminated upon the earlier of the receipt of consent from a super majority of eligible beneficiaries of the class that made the objection, or the resolution of the objection under paragraph (c). (b) An objection or consent under this section may be executed by a legal representative or natural guardian of a beneficiary without the filing of any proceeding or approval of any court. (c) If an objection is delivered to the fiduciary, then the fiduciary may petition the circuit court for an order quashing the objection and vesting in such fiduciary the power to adjust under this section. The burden will be on the objecting beneficiaries to prove that the power to adjust would be inequitable, illegal, or otherwise in contravention of the settlor’s intent. The court may award costs and attorney fees relating to the fiduciary’s petition in the same manner as in chancery actions. When costs and attorney fees are to be paid out of the trust, the court may, in its discretion, direct from which part of the trust they shall be paid. (d) If no timely objection is made or if the fiduciary is vested with the power to adjust by court order, the fiduciary may thereafter exercise the power to adjust without providing notice of its intent to do so unless, in vesting the fiduciary with the power to adjust, the court determines that unusual circumstances require otherwise. (e)1. If a fiduciary makes a good faith effort to comply with the notice provisions of subsection (13), but fails to deliver notice to one or more beneficiaries entitled to such notice, neither the validity of the notice required under this subsection nor the fiduciary’s power to adjust under this section shall be affected until the fiduciary has actual notice that one or more beneficiaries entitled to notice were not notified. Until the fiduciary has actual notice of the notice deficiency, the fiduciary shall have all of the powers and protections granted a fiduciary with the power to adjust under this chapter. 2. When the fiduciary has actual notice that one or more beneficiaries entitled to notice under subsection (13) were not notified, the fiduciary’s power to adjust under this section shall cease until all beneficiaries who are entitled to such notice, including those who were previously provided with such notice, are notified and given the opportunity to object as provided for under this subsection. (f) The objection of a super majority of eligible beneficiaries under this subsection shall be valid for a period of 1 year after the date of the notice set forth in subsection (13). Upon expiration of the objection, the fiduciary may thereafter give a new notice under subsection (13). (g) This section is not intended to create or imply a duty of the fiduciary of a trust existing on January 1, 2003, to seek a power to adjust under this subsection or to give the notice described in subsection (13) if the fiduciary does not desire to have a power to adjust under this section, and no inference of impropriety shall be made as the result of a fiduciary not seeking a power to adjust under this subsection.

(13)(a) A fiduciary of a trust in existence on January 1, 2003, that is not prohibited under subsection (5) from exercising the power to adjust shall, any time before initially exercising the power, provide to all eligible beneficiaries a statement containing the following: 1. The name, telephone number, street address, and mailing address of the fiduciary and of any person who may be contacted for further information; 2. A statement that unless a super majority of the eligible beneficiaries objects to the application of this section to the trust within 60 days after the date the statement pursuant to this subsection was served, this section shall apply to the trust; and 3. A statement that, if this section applies to the trust, the fiduciary will have the power to adjust between income and principal and that such a power may have an effect on the distributions to such beneficiary from the trust. (b) The statement may contain information regarding a fiduciary’s obligation with respect to the power to adjust between income and principal under this section. (c) The statement shall be served informally, in the manner provided in the Florida Rules of Civil Procedure relating to service of pleadings subsequent to the initial pleading. The statement may be served on a legal representative or natural guardian of a beneficiary without the filing of any proceeding or approval of any court.

(14) For purposes of subsections (12) and (13), the term: (a) “Eligible beneficiaries” means: 1. If at the time the determination is made there are one or more beneficiaries described in s. 736.0103(19)(c), the beneficiaries described in s. 736.0103(19)(a) and (c); or 2. If there is no beneficiary described in s. 736.0103(19)(c), the beneficiaries described in s. 736.0103(19)(a) and (b). (b) “Super majority of the eligible beneficiaries” means: 1. If at the time the determination is made there are one or more beneficiaries described in s. 736.0103(19)(c), at least two-thirds in interest of the beneficiaries described in s. 736.0103(19)(a) or two-thirds in interest of the beneficiaries described in s. 736.0103(19)(c), if the interests of the beneficiaries are reasonably ascertainable; otherwise, it means two-thirds in number of either such class; or 2. If there is no beneficiary described in s. 736.0103(19)(c), at least two-thirds in interest of the beneficiaries described in s. 736.0103(19)(a) or two-thirds in interest of the beneficiaries described in s. 736.0103(19)(b), if the interests of the beneficiaries are reasonably ascertainable, otherwise, two-thirds in number of either such class.

(15) A trust exists on January 1, 2003, if it is not revocable on January 1, 2003. A trust is revocable if revocable by the settlor alone or in conjunction with any other person. A trust is not revocable for purposes of this section if revocable by the settlor only with the consent of all persons having a beneficial interest in the property.

Legislative History

s. 9, ch. 2024-216.