When Are Trusts Modifiable?
Trusts are an excellent estate planning vehicle for providing comprehensive and wide control over the use, management, and access beneficiaries have to assets after death. If the right trust is chosen and structured correctly, this arrangement can benefit the financial security of a family for generations. Consequently, working with the right estate planning attorney who knows which type of trust will most effectively and directly address a person’s goals and needs surrounding asset protection, financial planning, and the unique circumstances of his/her family is critical. One often overlooked aspect of maintaining a trust is the need to review it periodically, especially when major family and life events occur, to ensure the provisions are still relevant and appropriate. Trusts are much more involved documents, though, when compared with a will, and the ability to change some aspect of a trust may be restricted by Florida trust law. One of the principle determiners of whether a trust can be changed is whether it is revocable or irrevocable. Revocable, or living trusts, are always modifiable, while irrevocable trusts are often much trickier to change. The added layers of complexity do not mean a modification is completely unavailable, however, and a discussion of the two methods available under Florida law for changing the terms of an irrevocable trust, will follow below.
Trusts are created for a variety of reasons, and when circumstances change, adhering to the primary purpose of the trust may prove impractical or beyond the role and powers of the trustee. Until somewhat recently, an irrevocable trust was only modifiable if it was ambiguous, but with the passage of a statute in 2007, this rule was changed and allowed the trustee or other interested party to seek a court’s approval to modify the trust. Note that there still must be a compelling reason to reach in and change the terms of a trust. Consequently, it is only permitted in the following circumstances:
- The purpose of the trust was achieved, or became wasteful, illegal, impossible, or impractical to achieve;
- Circumstances the creator did not know when establishing the trust now substantially impair complying with the terms, or risk defeat of the material purpose;
- The material purpose of the trust no longer exists; or
- Modification is in the best interests of the beneficiaries.
Essentially, the court will need to see substantial issues with the ability of the trustee to execute the purpose, terms, or intent of the trust before agreeing to modify. Having the ability to seek modification is a significant aspect of Florida trust law, but does bring the cost, time, and uncertainty of a court proceeding. If the trust is structured properly, another option may be available.
Decanting a Trust
If a trustee is granted the mandated amount of power, he/she would have authority to decant or transfer the assets to a new trust with new and better terms. Specifically, if the trustee is given absolute authority to invade trust principal, the trustee would then have the ability to distribute the assets of the first trust into a second one. The authority to invade the principal must not be related to a defined purpose or circumstance, and is permissible under the following limitations:
- The decanting is not related to reducing fixed income, annuity, or specified interests;
- All the beneficiaries must appear in both trust documents; and
- All beneficiaries must receive 60 days’ notice of the intent to decant.
The main advantage of this approach is the avoidance of the cost and delay of court involvement, and gaining the flexibility to fix a trust as needed. Some issues decanting can address include:
- Clarifying ambiguities;
- Updating to account for changes in the law;
- Adapting to a new circumstance for a beneficiary;
- Adding a spendthrift clause; or
- Permitting the appointment or removal of a trustee without court approval.
Speak with an Attorney
Trusts offer a wide variety of benefits to those looking for a comprehensive estate plan, but they need to be planned properly to obtain the maximum advantages. William Rambaum has more than 30 years’ experience helping clients put together effective estate plans, and is waiting to provide this same level of detail and dedication to your situation. Contact the Oldsmar office to schedule an appointment.