Can a court consider extrinsic evidence when asked to modify a trust under the judicial modification statutes even if the trust instrument is unambiguous? YES!
Historically, common law rules of construction provided that the intent of a settlor of a trust should be ascertained from the “four corners” of the trust and that extrinsic evidence of the settlor’s intent should only be considered if there was an ambiguity in the trust instrument. The effect of this common-law rule was that a trustee or beneficiary seeking to modify the terms of the trust would only be permitted to do so if the court found that the trust, or a portion thereof, was ambiguous. Absent ambiguity, the court was unable to consider any other evidence of the settlor’s intent, and the beneficiaries were stuck with whatever the trust said on its face. The old analysis changed when Florida adopted the Florida Trust Code on July 1, 2007.
Florida’s Trust Code is modeled on the Uniform Trust Code (“UTC”). The UTC contains a section specifically dealing with trust modification (s. 412). The Comments to section 412 state that “[t]his section broadens the court’s ability to apply equitable deviation to terminate or modify a trust…The purpose of the “equitable deviation” authorized by the section is not to disregard the settlor’s intent but to modify inopportune details to effectuate better the settlor’s broader purposes.” The Comment further states that “effectuating a distribution consistent with the purposes of the trust requires an examination of what the settlor would have intended had the settlor been aware of the unanticipated circumstances.” Unanticipated circumstances might involve a change in tax law or a change in a beneficiary’s needs (perhaps due to illness or injury), etc.
It is on the foundation laid by the UTC that Florida constructed the Florida Trust Code. The Florida Trust Code incorporates the equitable deviation doctrine in a string of judicial modification statutes designed to provide flexibility to a court of equity to effectuate a settlor’s intent that is otherwise being frustrated by unanticipated circumstances. The old analysis of whether the trust instrument is ambiguous is irrelevant. The court is specifically authorized and directed to consider extrinsic evidence of the settlor’s probable intent. The use of the word “probable” further relaxes the standard imposed on the court.
The Florida Trust Code now provides as follows: Section 736.1101(1) states that “except as provided in s. 736.0105(2), the intent of the settlor as expressed in the terms of the trust controls the legal effect of the dispositions made in the trust.” In turn, section 736.0105(2) states that “[t[he terms of a trust prevail over any provision of this code except: “(j) The power of a court to modify or terminate a trust under ss. 736.0410-7396.04115.” (judicial modification statutes) Accordingly, the Florida Trust Code liberates a court from the confines of common law rules of construction when being asked to modify or terminate a trust. No longer is the court restricted to the four corners of the trust instrument to ascertain the settlor’s intent. Ambiguity is not relevant under the judicial modification statutes. The overriding objective is to modify the trust to account for unanticipated circumstances that are frustrating the settlor’s intent.
Fla. Stat. s. 736.04113 (Judicial modification of irrevocable trust when a modification is not inconsistent with settlor’s purpose)
Section 736.04113 states that a trustee or qualified beneficiary may ask the court to modify a trust because of circumstances not anticipated by the settlor. In modifying the trust, the court may amend or change the terms of the trust governing distribution. Further, in exercising its discretion, the court shall consider extrinsic evidence relevant to the proposed modification.
Fla. Stat. s. 736.04114 (Limited judicial construction of irrevocable trust with federal tax provisions)
Section 736.04114 is even more explicit and states that “[i]n construing the trust, the court shall consider the terms and purpose of the trust, the facts and circumstances surrounding the creation of the trust, and the settlor’s probable intent. In determining the settlor’s probable intent, the court may consider evidence relevant to the settlor’s intent even though the evidence contradicts an apparent plain meaning of the trust instrument.”
Fla. Stat. s. 736.04115 (Judicial modification of irrevocable trust when a modification is in the best interest of beneficiaries)
Section 736.04115 provides that if compliance with the terms of the trust is not in the best interest of the beneficiaries, then a trustee or qualified beneficiary may ask the court to modify the trust. This section directs the court to exercise its discretion in a manner that conforms to the extent possible with the intent of the settlor, taking into account the current circumstances and best interests of the beneficiaries. Like section 736.04113, this section also directs the court to consider extrinsic evidence relevant to the proposed modification.
With the enactment of the Florida Trust Code, the old analysis that a trust instrument must be ambiguous before a court is permitted to consider extrinsic evidence to ascertain the settlor’s intent is obsolete. However, it is not uncommon to seek judicial modification only to be met with an argument that the trust is unambiguous and therefore the court is prohibited from considering extrinsic evidence. Cases like Sorrels v. McNally, 105 So. 106 (Fla. 1925), In re Estate of Barry, 689 So.2d 1186 (Fla. 4th DCA 1997), and Bryan v. Dethlefs, 959 So.2d 314 (Fla. 3d DCA May 16, 2007) are commonly cited for this position. Importantly, each case pre-dates the July 1, 2007 enactment of the Florida Trust Code and is superseded by statute in the context of judicial modification of trusts.
