lt's The Law
Irrevocable Trust Might Be Revocable
I want to leave money in trust for my son. My son is rather undependable and I do not want him to have access to the money. I want it to be used only for the purposes I direct. Can that be done?
You can establish and fund a trust during your lifetime which is designed to provide for your son or you can have one as part of your estate planning documents to be funded when you die. In either case, proper drafting can make the trust irrevocable and may even place the trust beyond ability of a court to modify. Draftsmanship is critical, as Florida statutes and common law allow modification of irrevocable trusts under special circumstances.
The first provision to include is a spendthrift clause. A spendthrift clause is a provision in a trust or will that prohibits a beneficiary from pledging or disposing of his or her interests, voluntarily or involuntarily. A spendthrift clause also protects the beneficiary from claims by creditors of the beneficiary, as the clause insulates the beneficiary's interest from most of those claims. Certain creditors have super priority and can attach the beneficiary's interest. Those include claims by a beneficiary's child, claims of a beneficiary's former spouse for alimony and support, or a claim of any state or the federal government to the extent a law of Florida or a federal law so provides.
Careful drafting does not stop with inclusion of a spendthrift provision. Florida Statutes, as recently amended, also provide for modification and even revocation of an irrevocable trust under certain circumstances. Most of the provisions are intended to allow correction of mistakes and to ensure that original intent of the settlor (person establishing the trust) is met. But, because the statutes allow modification, there is room for argument and change you might not want.
Section 736.04113 Fla. Stat. allows judicial modification when modification is not inconsistent with the settlor's purpose. The statute allows modification or termination (a) when purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impracticable or (b) because of circumstances not anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust or (c) a material purpose of the trust no longer exists. If the court finds one of the qualifying reasons present, the court can modify the trust, terminate the trust or direct or permit the trustee to do acts or to refrain from acts without regard to authorization or prohibition in the trust.
Increasing concern with impact of changes in federal tax law on irrevocable trusts led the legislature to adopt Section 736.04114 Fla. Stat. in 2010. That statute allows the court to modify certain trusts to carry out the intention of the settlor if the trust includes formula for disposition which appears to be based on estate tax law in effect at time the trust was prepared but, due to changes in tax law, strict compliance with terms of the trust would appear contrary to the settlor's intent.
Courts can also modify irrevocable trusts when modification is in the best interests of the beneficiaries under Section 736.04115 Fla. Stat. But, the court cannot modify a trust under that statute if terms of the trust expressly prohibit judicial modification.
Florida statutes do not provide the only avenue for modification of irrevocable trusts. The recent case of Peck v. Peck confirms that courts also have authority to modify these trusts under common law. In
Peck, funds were given to a beneficiary with the condition that the beneficiary establish a trust to hold the funds. The beneficiary created the trust and made herself co-trustee. The trust language stated the trust was
"irrevocable and shall not be subject to amendment, and no portion of the Trust Estate may be withdrawn from the operation of this Trust except in accordance with the terms herein before set forth". The trust gave the beneficiary right to withdraw a stated amount each year. The trust also allowed the beneficiary to direct in her will who would receive the assets remaining in the trust when the beneficiary died.
The beneficiary prepared a will directing that any assets remaining in the trust at her death be distributed to her three children. She then filed a petition with the court to terminate the trust and her children agreed to the termination. The co-trustee objected on ground that the beneficiary might unwisely dissipate assets and evidence confirmed that the person funding the trust was worried about the beneficiary's ability to maintain financial stability. The court ruled that under common law, a trust can be terminated if the settlor and all beneficiaries consent, even if the trust is irrevocable and even if the trust purposes have not been accomplished.
The court noted that the person creating the trust could probably have structured it so it could not be modified by the common law method after his death or while living. But, the person funding the trust did not create it. Instead, his will allowed the beneficiary to create the trust, which made the beneficiary the settlor. Once that was done, the beneficiary as settlor along with her children as the contingent beneficiaries could terminate the trust.
Clearly establishing a settlor's intent and purpose in creating a trust is important to ward off later efforts to change. Attention to detail in language prohibiting modification and revocation is also important. For these reason, you should fully discuss your intent with and rely on an experienced estate planning attorney to draft a trust that can withstand future efforts to modify or terminate.
By: William G. Morris, Esquire
William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.
Questions for this column can be sent to: William G. Morris, e-mail: firstname.lastname@example.org or by fax, (239) 642-0722 or
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