Florida Statutes
Part IV - Creation, Validity, Modification, and Termination (Ss. 736.0401-736.0417)
736.04117 - Trustee’s power to invade principal in trust.

(1) DEFINITIONS.—As used in this section, the term:
(a) “Absolute power” means a power to invade principal that is not limited to specific or ascertainable purposes, such as health, education, maintenance, and support, regardless of whether the term “absolute” is used. A power to invade principal for purposes such as best interests, welfare, comfort, or happiness constitutes an absolute power not limited to specific or ascertainable purposes.
(b) “Authorized trustee” means a trustee, other than the settlor or a beneficiary, who has the power to invade the principal of a trust.
(c) “Beneficiary with a disability” means a beneficiary of the first trust who the authorized trustee believes may qualify for government benefits based on disability, regardless of whether the beneficiary currently receives those benefits or has been adjudicated incapacitated.
(d) “Current beneficiary” means a beneficiary who, on the date his or her qualification is determined, is a distributee or permissible distributee of trust income or principal. The term includes the holder of a presently exercisable general power of appointment but does not include a person who is a beneficiary only because he or she holds another power of appointment.
(e) “Government benefits” means financial aid or services from any state, federal, or other public agency.
(f) “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.
(g) “Power of appointment” has the same meaning as provided in s. 731.201.
(h) “Presently exercisable general power of appointment” means a power of appointment exercisable by the power holder at the relevant time. The term:
1. Includes a power of appointment that is exercisable only after the occurrence of a specified event or that is subject to a specified restriction, but only after the event has occurred or the restriction has been satisfied.
2. Does not include a power of appointment that is exercisable only upon the death of the power holder.

(i) “Substantially similar” means that there is no material change in a beneficiary’s beneficial interests or in the power to make distributions and that the power to make a distribution under a second trust for the benefit of a beneficiary who is an individual is substantially similar to the power under the first trust to make a distribution directly to the beneficiary. A distribution is deemed to be for the benefit of a beneficiary if:
1. The distribution is applied for the benefit of a beneficiary;
2. The beneficiary is under a legal disability or the trustee reasonably believes the beneficiary is incapacitated, and the distribution is made as permitted under this code; or
3. The distribution is made as permitted under the terms of the first trust instrument and the second trust instrument for the benefit of the beneficiary.

(j) “Supplemental needs trust” means a trust that the authorized trustee believes would not be considered a resource for purposes of determining whether the beneficiary who has a disability is eligible for government benefits.
(k) “Vested interest” means a current unconditional right to receive a mandatory distribution of income, a specified dollar amount, or a percentage of value of a trust, or a current unconditional right to withdraw income, a specified dollar amount, or a percentage of value of a trust, which right is not subject to the occurrence of a specified event, the passage of a specified time, or the exercise of discretion.
1. The term includes a presently exercisable general power of appointment.
2. The term does not include a beneficiary’s interest in a trust if the trustee has discretion to make a distribution of trust property to a person other than such beneficiary.

(2) DISTRIBUTION FROM FIRST TRUST TO SECOND TRUST WHEN AUTHORIZED TRUSTEE HAS ABSOLUTE POWER TO INVADE.—
(a) Unless a trust instrument expressly provides otherwise, an authorized trustee who has absolute power under the terms of the trust to invade its principal, referred to in this section as the “first trust,” to make current distributions to or for the benefit of one or more beneficiaries may instead exercise such power by appointing all or part of the principal of the trust subject to such power in favor of a trustee of one or more other trusts, whether created under the same trust instrument as the first trust or a different trust instrument, including a trust instrument created for the purposes of exercising the power granted by this section, each referred to in this section as the “second trust,” for the current benefit of one or more of such beneficiaries only if:
1. The beneficiaries of the second trust include only beneficiaries of the first trust; and
2. The second trust does not reduce any vested interest.

(b) In an exercise of absolute power, the second trust may:
1. Retain a power of appointment granted in the first trust;
2. Omit a power of appointment granted in the first trust, other than a presently exercisable general power of appointment;
3. Create or modify a power of appointment if the power holder is a current beneficiary of the first trust;
4. Create or modify a power of appointment if the power holder is a beneficiary of the first trust who is not a current beneficiary, but the exercise of the power of appointment may take effect only after the power holder becomes, or would have become if then living, a current beneficiary of the first trust; and
5. Extend the term of the second trust beyond the term of the first trust.

(c) The class of permissible appointees in favor of which a created or modified power of appointment may be exercised may differ from the class identified in the first trust.

(3) DISTRIBUTION FROM FIRST TRUST TO SECOND TRUST WHEN AUTHORIZED TRUSTEE DOES NOT HAVE ABSOLUTE POWER TO INVADE.—Unless the trust instrument expressly provides otherwise, an authorized trustee who has a power, other than an absolute power, under the terms of a first trust to invade principal to make current distributions to or for the benefit of one or more beneficiaries may instead exercise such power by appointing all or part of the principal of the first trust subject to such power in favor of a trustee of one or more second trusts. If the authorized trustee exercises such power:
(a) The second trusts, in the aggregate, shall grant each beneficiary of the first trust beneficial interests in the second trusts which are substantially similar to the beneficial interests of the beneficiary in the first trust.
(b) If the first trust grants a power of appointment to a beneficiary of the first trust, the second trust shall grant such power of appointment in the second trust to such beneficiary, and the class of permissible appointees shall be the same as in the first trust.
(c) If the first trust does not grant a power of appointment to a beneficiary of the first trust, the second trust may not grant a power of appointment in the second trust to such beneficiary.
(d) Notwithstanding paragraphs (a), (b), and (c), the term of the second trust may extend beyond the term of the first trust, and, for any period after the first trust would have otherwise terminated, in whole or in part, under the provisions of the first trust, the trust instrument of the second trust may, with respect to property subject to such extended term:
1. Include language providing the trustee with the absolute power to invade the principal of the second trust during such extended term; and
2. Create a power of appointment, if the power holder is a current beneficiary of the first trust, or expand the class of permissible appointees in favor of which a power of appointment may be exercised.

(4) DISTRIBUTION FROM FIRST TRUST TO SUPPLEMENTAL NEEDS TRUST.—
(a) Notwithstanding subsections (2) and (3), unless the trust instrument expressly provides otherwise, an authorized trustee who has the power under the terms of a first trust to invade the principal of the first trust to make current distributions to or for the benefit of a beneficiary with a disability may instead exercise such power by appointing all or part of the principal of the first trust in favor of a trustee of a second trust that is a supplemental needs trust if:
1. The supplemental needs trust benefits the beneficiary with a disability;
2. The beneficiaries of the second trust include only beneficiaries of the first trust; and
3. The authorized trustee determines that the exercise of such power will further the purposes of the first trust.

(b) Except as affected by any change to the interests of the beneficiary with a disability, the second trusts, in the aggregate, shall grant each other beneficiary of the first trust beneficial interests in the second trusts which are substantially similar to such other beneficiary’s beneficial interests in the first trust.

(5) PROHIBITED DISTRIBUTIONS.—
(a) An authorized trustee may not distribute the principal of a trust under this section in a manner that would prevent a contribution to that trust from qualifying for, or that would reduce a federal tax benefit, including a federal tax exclusion or deduction, which was originally claimed or could have been claimed for that contribution, including:
1. An exclusion under s. 2503(b) or s. 2503(c) of the Internal Revenue Code;
2. A marital deduction under s. 2056, s. 2056A, or s. 2523 of the Internal Revenue Code;
3. A charitable deduction under s. 170(a), s. 642(c), s. 2055(a), or s. 2522(a) of the Internal Revenue Code;
4. Direct skip treatment under s. 2642(c) of the Internal Revenue Code; or
5. Any other tax benefit for income, gift, estate, or generation-skipping transfer tax purposes under the Internal Revenue Code.

(b) If S corporation stock is held in the first trust, an authorized trustee may not distribute all or part of that stock to a second trust that is not a permitted shareholder under s. 1361(c)(2) of the Internal Revenue Code. If the first trust holds stock in an S corporation and is, or but for provisions of paragraphs (a), (c), and (d) would be, a qualified subchapter S trust within the meaning of s. 1361(d) of the Internal Revenue Code, the second trust instrument may not include or omit a term that prevents it from qualifying as a qualified subchapter S trust.
(c) Except as provided in paragraphs (a), (b), and (d), an authorized trustee may distribute the principal of a first trust to a second trust regardless of whether the settlor is treated as the owner of either trust under ss. 671-679 of the Internal Revenue Code; however, if the settlor is not treated as the owner of the first trust, he or she may not be treated as the owner of the second trust unless he or she at all times has the power to cause the second trust to cease being treated as if it were owned by the settlor.
(d) If an interest in property which is subject to the minimum distribution rules of s. 401(a)(9) of the Internal Revenue Code is held in trust, an authorized trustee may not distribute such an interest to a second trust under subsection (2), subsection (3), or subsection (4) if the distribution would shorten the otherwise applicable maximum distribution period.

(6) EXERCISE BY WRITING.—The exercise of a power to invade principal under subsection (2), subsection (3), or subsection (4) must be by a written instrument signed and acknowledged by the authorized trustee and filed with the records of the first trust.
(7) RESTRICTIONS ON EXERCISE OF POWER.—The exercise of a power to invade principal under subsection (2), subsection (3), or subsection (4):
(a) Is considered the exercise of a power of appointment, excluding a power to appoint to the authorized trustee, the authorized trustee’s creditors, the authorized trustee’s estate, or the creditors of the authorized trustee’s estate.
(b) Is subject to the provisions of s. 689.225 covering the time at which the permissible period of the rule against perpetuities begins and the law that determines the permissible period of the rule against perpetuities of the first trust.
(c) May apply to a second trust created or administered under the law of any jurisdiction.
(d) May not:
1. Increase the authorized trustee’s compensation beyond the compensation specified in the first trust instrument; or
2. Relieve the authorized trustee from liability for breach of trust or provide for indemnification of the authorized trustee for any liability or claim to a greater extent than the first trust instrument; however, the exercise of the power may divide and reallocate fiduciary powers among fiduciaries and relieve a fiduciary from liability for an act or failure to act of another fiduciary as otherwise allowed under law or common law.

(8) NOTICE.—
(a) The authorized trustee shall provide written notification of the manner in which he or she intends to exercise his or her power to invade principal to all of the following parties at least 60 days before the effective date of the authorized trustee’s exercise of such power pursuant to subsection (2), subsection (3), or subsection (4):
1. All qualified beneficiaries of the first trust.
2. If paragraph (5)(c) applies, the settlor of the first trust.
3. All trustees of the first trust.
4. Any person who has the power to remove or replace the authorized trustee of the first trust.

(b) The authorized trustee’s obligation to provide notice under this subsection is satisfied when he or she provides copies of the proposed instrument exercising the power, the trust instrument of the first trust, and the proposed trust instrument of the second trust.
(c) If all of those required to be notified waive the notice period by signed written instrument delivered to the authorized trustee, the authorized trustee’s power to invade principal shall be exercisable immediately.
(d) The authorized trustee’s notice under this subsection does not limit the right of any beneficiary to object to the exercise of the authorized trustee’s power to invade principal except as otherwise provided in other applicable provisions of this code.

(9) INAPPLICABILITY OF SPENDTHRIFT CLAUSE OR OTHER PROHIBITION.—The exercise of the power to invade principal under subsection (2), subsection (3), or subsection (4) is not prohibited by a spendthrift clause or by a provision in the trust instrument that prohibits amendment or revocation of the trust.
(10) NO DUTY TO EXERCISE.—Nothing in this section is intended to create or imply a duty to exercise a power to invade principal, and no inference of impropriety may be made as a result of an authorized trustee’s failure to exercise the power to invade principal conferred under subsections (2), (3), and (4).
(11) NO ABRIDGEMENT OF COMMON LAW RIGHTS.—This section may not be construed to abridge the right of any trustee who has a power of invasion to appoint property in further trust that arises under the terms of the first trust or under any other section of this code or under another provision of law or under common law.
History.—s. 2, ch. 2007-153; s. 5, ch. 2018-35.