Blogs from August, 2014

People create trusts for a variety of reasons.  Some create them for creditor protection.  Others create them because they are concerned about providing the beneficiaries with large sums of money all at once.  Although these reasons may be valid and appropriate at the time that the trust is created, what happens if that purpose is no longer in existence?  What if there is a substantial change of circumstances that causes the trust to be inconsistent with the settlor’s purposes (i.e. to benefit the beneficiaries)?

Fla. Stat. 736.04113 states, in relevant part, as follows:

1. Upon application of a trustee of a trust or any qualified beneficiary, a court at any time may modify the terms of a trust that is not then revocable in the manner provided in subsection (2) if:
   1. The purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impractical to fulfill;
   2. 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
   3. A material purpose of the trust no longer exists.
2. In modifying a trust under this section, a court may:
   1. Amend or change the terms of the trust, including terms governing the distribution of the trust income or principal or terms governing the administration of the trust;
   2. Terminate the trust in whole or in part;
   3. Direct or permit the trustee to do acts that are not authorized or that are prohibited by the terms of the trust; or
   4. Prohibit the trustee from performing acts that are permitted or required by the terms of the trust.
3. In exercising discretion to modify a trust under this section:
   1. The court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and extrinsic evidence relevant to the proposed modification;
   2. The court shall consider spendthrift provisions as a factor in making a decision, but the court is not precluded from modifying a trust because the trust contains spendthrift provisions.  (emphasis added).

In other words, a beneficiary can petition the court, over the objection of a trustee or other beneficiary, to terminate an irrevocable trust that was created for his or her benefit if there has been a change of circumstances that contradict some material purpose of the trust.

A spendthrift provision of trust gives the trustee the authority to decide how and when trust funds should be spent for the benefit of a beneficiary.  Many times, such spendthrift provisions are created in order to protect the beneficiary from his or her own “wasteful” lifestyle (according to the settlor).  What if the beneficiary had such a lifestyle at the time that the trust was created, but now no longer have such problems?  Is it fair for a beneficiary to continue to be subject to the spendthrift trust even though that material purpose of the settlor no longer exists?

Through this statute, beneficiaries subject to a spendthrift provision do not have to wait for their funds if he or she can provide evidence that satisfies the elements required in Fla. Stat. 736.04113 to terminate the trust.  Although the court has a large amount of discretion to make such a determination and to weigh the evidence before it, a beneficiary in such a position would be wise to contact an experienced probate and trust litigator in order to discover what rights he or she may have at his or her disposal for a Florida trust termination.