Irrevocable Trust Modification

LET OUR BOCA RATON TRUST ADMINISTRATION LAW FIRM HELP YOU MODIFY AN IRREVOCABLE TRUST

As a general rule, irrevocable trusts are not subject to revocation or amendment. However, a number of estate planning tools and strategies are available to change the terms of an irrevocable trust. These tools and strategies for modifying irrevocable trusts vary in scope, purpose and procedure. Some involve judicial proceedings, some require agreement among beneficiaries, and others require only the actions of the grantor (the person who formed the trust).

WHEN CAN YOU MODIFY AN IRREVOCABLE TRUST IN FLORIDA?

For most people, the need to modify an irrevocable trust arises due to a change in circumstances. While a sound estate plan will be prepared with a long-term perspective in mind, change is inevitable.  An, what may have made sense five, 10 or 20 years ago might not make sense today. Florida’s estate planning laws allow sufficient flexibility to address unexpected changes, and this includes the flexibility to modify, or supersede, the terms of an irrevocable trust.

There are many different circumstances in which the modification of an irrevocable trust may be desirable or necessary. Some examples of these circumstances include:

  • The birth or death of family members
  • Changes in personal or family financial condition
  • Changes in the needs of an irrevocable trust’s named beneficiary or beneficiaries
  • Revised personal beliefs, preferences or estate planning goals
  • Changes in state or federal inheritance and tax laws

This list is far from exhaustive; and, if you have an irrevocable trust that you would like to modify, we encourage you to speak with one of our Boca Raton estate planning attorneys. At Ellis Law Group, we can explain the options you have available, and we can help you craft and execute a strategy that is designed specifically to achieve your estate planning goals.

HOW CAN YOU MODIFY AN IRREVOCABLE TRUST IN FLORIDA?

Despite their name, irrevocable trust can be modified, and even rendered effectively null and void, in a variety of different ways. As with other estate planning matters, the most advantageous way to move forward with modifying an irrevocable trust depends on each individual’s personal circumstances and estate planning goals.

In Florida, there are four primary ways to modify an irrevocable trust. These are:

  • Through the process of “reformation,”
  • Entering into a nonjudicial settlement agreement,
  • Requesting a judicial modification, and
  • Making use of Florida’s “decanting” statute.

1. REFORMATION

Reformation is a judicial action permitted under the Florida Statutes that seeks to correct mistakes or reword errors in a trust in order to ensure that the trust accurately reflects the grantor’s original intent. Upon application of the grantor or any interested person, a court may modify the terms of a trust, even if such terms are unambiguous, to conform the terms of the trust to the grantor’s intent. The party seeking reformation must prove by clear and convincing evidence that the grantor’s intent and the terms of the trust were affected by a mistake of law or fact.

In determining the grantor’s original intent, the court will consider evidence relevant to the grantor’s intent even though the evidence contradicts the apparent plain meaning of the trust. A reformed trust relates back to the time of the trust’s creation.

While reformation is often a relatively straightforward process, particularly when the error or ambiguity is clear, reformation has certain limitations when compared to the other options for modifying an irrevocable trust. As discussed, the grounds for seeking reformation are limited; and, unlike the other options discussed below, reformation will not necessarily facilitate additional modifications to the terms of the trust going forward.

2. NONJUDICIAL SETTLEMENT AGREEMENT

Florida law allows interested persons to enter into a binding nonjudicial settlement agreement in order to resolve any trust matter, provided that the resolution is not prohibited by the applicable provisions of the Florida Trust Code. A nonjudicial settlement agreement allows for the informal resolution of trust issues without the time and expense of litigation. Florida law provides that the grantor and all beneficiaries may modify an irrevocable trust by consent through the execution of a nonjudicial settlement agreement. Additionally, a grantor may, without the consent of the beneficiaries, amend the terms of an irrevocable trust if he or she gives up privileges in favor of the trust’s beneficiaries.

As referenced, a nonjudicial settlement agreement will be deemed invalid if it produces a result that is not authorized by the Florida Trust Code. With this in mind, the types of matters that may be resolved by a nonjudicial settlement agreement in Florida include:

  • The interpretation or construction of the terms of an irrevocable trust
  • The approval of a trustee’s report or accounting
  • The direction to a trustee to refrain from performing a particular act or granting the trustee any necessary or desirable power
  • The resignation or appointment of a trustee
  • The determination of a trustee’s compensation
  • The transfer of a trust’s principal place of administration
  • The liability of a trustee for an action relating to the trust

3. JUDICIAL MODIFICATION

Pursuant to the Florida Trust Code, a trustee or qualified beneficiary may petition the court for an order modifying or terminating an irrevocable trust in the event that the purposes of the trust have been fulfilled or have become illegal, impossible, wasteful or impractical to fulfill. Judicial modification is also permitted if, due to circumstances not anticipated by the grantor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust, or if a material purpose of the trust no longer exists.

The Florida courts have broad discretion to modify, terminate or direct action if they believe such action is necessary under the Florida statutes. For instance, a court may modify an irrevocable trust even to the extent of changing the terms of trust distribution; and, in doing so, it may consider extrinsic evidence at its discretion. This makes judicial modification a viable option in a much broader range of circumstances than reformation and, to a lesser extent, nonjudicial settlement agreements, but it also means that the process of achieving a desirable result can be more complex and potentially have a higher risk of leading to litigation.

4. DECANTING

Originally created at common law and recently codified in Fla. Stat. § 736.04117, if the distribution standards of a trust allow a trustee to distribute trust assets for any purpose or reason then the trustee may effectively distribute all of the trust assets to a new trust with more favorable trust terms. This is referred to in the law as “decanting.” Generally, trust decanting is seen as an estate, gift and income tax neutral event. However, there are exceptions, and careful tax planning is crucial when seeking to use decanting to effectively replace the terms of an irrevocable trust.

In addition to the reasons discussed above, reasons why it may be desirable to use decanting to supersede the terms of an existing irrevocable trust include:

  • Affecting administrative changes in outdated documents to provide more flexibility
  • Expanding trustee powers
  • Revising trustee compensation
  • Restricting beneficiaries’ rights to obtain information about the nature and extent of their interest in the trust
  • Achieving tax planning
  • Providing asset protection
  • Correcting drafting errors
  • Splitting trusts and consolidating trusts
  • Altering distributions to include special needs provisions
  • Adding powers of appointment for beneficiaries so that they can change the trust’s ultimate distributees

SPEAK WITH A BOCA RATON ESTATE PLANNING LAWYER IN CONFIDENCE

If you have questions about modifying an irrevocable trust created under Florida law, we invite you to schedule a confidential consultation with a Boca Raton estate planning lawyer at Ellis Law Group. To request an appointment, please call 561-475-3848 or tell us how we can reach you online today.

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