Irrevocable but not Unchangeable: A Brief Summary of Trust Modification Methods
The old adage that the best laid plans of mice and men often go awry is particularly applicable in the context of irrevocable trusts. Despite a settlor’s best intentions, the terms of a trust often don’t contemplate changes in circumstances that arise many years after the trust was established, including changes in tax laws and in family situations. Fortunately, in Florida, irrevocable trusts are generally changeable. In fact, there are several methods available in Florida to modify irrevocable trusts.
If the trustees and the qualified beneficiaries of an irrevocable trust unanimously agree, they may be able to modify its terms by agreement without court approval. Per the Florida Trust Code, nonjudicial modification is, however, limited to trusts that became irrevocable after January 1, 2001 and long term “dynasty” trusts.
The trustee of an irrevocable trust may be able to “decant” and distribute all of the trust assets to a new trust with modified terms. Florida’s decanting statute is limited in that the trustee must have the absolute power to invade principal in order to decant. Although many trusts restrict the trustee’s power to invade principal, e.g. only for the health, education, maintenance and support of the beneficiaries, there is also case law precedent that may allow decanting to a new trust even if the trustee’s power to invade principal is not absolute.
The Florida Trust Code authorizes a court to modify any irrevocable trust if the modification is necessary because: (1) the purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impracticable to fulfill; (2) circumstances are not anticipated by the settlor or compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust; or (3) a material purpose of the trust no longer exists. This method of modification is useful if the methods described above are unavailable, or in circumstances in which obtaining a court order is prudent. A court may also modify an irrevocable trust if compliance with its terms is not in the best interests of the trust beneficiaries.
Modification or Termination of Uneconomical Trust
The trustee of a trust having a total value less than $50,000 may terminate the trust. The Florida Trust Code also authorizes courts to modify or terminate a trust if it determines that the value of the trust is insufficient to justify the cost of administration.
Choosing the best method to modify an irrevocable trust depends on the unique facts and circumstances of each case.
Andrew joined the firm in 2014 after practicing with a large firm in Southwest Ohio. He focuses his practice in the areas of estate planning, estate and trust administration, business succession planning, tax planning, and representing individuals before the IRS.