Florida Tries to Strike a Balance between Trustee Liability and Beneficiary Rights
On July 1, 2010, Florida adopted and passed legislation (§ 736.0902) that statutorily protects “qualified” trustees when handling irrevocable life insurance trusts (“ILIT”). The statute was passed because of a going concern that trustees were hesitant to fulfill investing fiduciary duties in fear of being liable to the trust or its beneficiaries.
The statute specifically addresses two major concerns and provides a checklist of which trustees are and are not “qualified” for liability protection. The two areas of concern are: insurable interests and the prudent investor rule.
The statute does not protect a trustee from every situation. For example, when insurance is purchased through an affiliate of the trustee and either party receives a commission, the trustee is not protected under the statute. Another example, but which pertains to the insurable interest section of the statute, will not protect a trustee who has knowledge that the beneficiaries lacked an insurable interest when the insurance policy was issued.
There are other situations that the statute does not protect. However, the overall effect of the statute is designed to assure trustees invest in a prudent matter, continue seeking returns for the benefit of the trust, but invest with confidence that investment decisions will not subject the trustee to liability.
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