Court Stops Beneficiaries From Commuting Trust

By Jenna G. Rubin and Charles D. Rubin

EXECUTIVE SUMMARY: An income beneficiary of a trust and the trust remaindermen were unable to successfully commute and terminate a trust.

FACTS: A revocable trust became irrevocable at the death of the settlor. The settlor provided for an income interest for her son for his life, with the remainder to pass to three educational institutions at the son’s later death.

The son and the remaindermen entered into an agreement to terminate the trust, and divide the $3 million of trust assets between them based on their actuarial interests. The trustee of the trust was not a party to the agreement, and did not agree to the early termination.

The son filed a complaint against the trustee to terminate the trust in accordance with the agreement, citing Fla.Stats. §§736.04113 and 736.04115. Fla.Stats. §736.04113 allows for judicial modification of an irrevocable trust on petition of a trustee or a qualified beneficiary if: (a) the purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impracticable to fulfill; (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. Fla.Stats. §736.04115 similarly allows judicial modification if compliance with the terms of a trust is in the best interests of the beneficiaries, taking into account the intent of the settlor and the current circumstances and best interests of the beneficiaries.

Both parties moved for summary judgment, and the trial court ruled in favor of the son, allowing termination of the trust. The trial court held that the termination was in the best interests of the beneficiaries since it would preserve trust assets by eliminating unnecessary expenses relating to trust administration. On appeal, the appellate court reversed the trial court and directed that summary judgment be entered in favor of the trustee barring the termination of the trust.

COMMENTS: There are few income beneficiaries and remaindermen who would not want to commute their trusts and receive direct and immediate access and ownership over trust assets if given the opportunity. And in fact, this can be accomplished in Florida if the beneficiaries can satisfy a court that it would be in their best interests (for post-2000 trusts) or that trust purposes no longer exis,. have been fulfilled, or have become illegal, impossible, wasteful, or impracticable to fulfill. Fla.Stats. §§736.04113 and 736.04115. Before this decision, the desires of settlors to retain assets in trust for beneficiaries to avoid vesting of significant assets in their hands, to protect them from creditor claims, to have third party or professional asset management, and to achieve the other benefits of trust ownership could be easily thwarted if courts are lenient in applying those statutory provisions... Here though, the appellate court recognized that the settlor’s intent is the polestar of trust interpretation and that early termination of the trust based on common circumstances applicable to many trust administrations would thwart that intent.

The appellate court noted that the trustees’ fees were customary, there were no unusual administrative expenses, and there had been no invasion of principal. It also indicated that market fluctuations did not create a real risk that the settlor’s intent would be thwarted. The court noted “[i]f we were to affirm the trial court's ruling, beneficiaries could have trusts terminated simply by stating that they did not want to pay trustees' fees, administrative expenses, or be concerned with market fluctuations.”

The case is instructive since there is little case law that interprets the specific requirements for judicial modification in the subject statutes. It makes terminating a trust more difficult by holding that barring other circumstances, mere savings on future administrative expenses, and the risk of market fluctuations will not be not enough to meet the requirements for judicial modification or termination.

The case also illustrates the benefits of having the trustee on board when petitioning to terminate a trust. If the trustee and all the beneficiaries reach an agreement, it is more likely than not that a trial court will approve termination when presented with a petition invoking the modification statutes and an agreed order to sign. However, the case also suggests that even with the trustee’s participation, an activist trial court may decline to sign off on the termination based merely on the grounds put forth by the beneficiaries in this case.
If the trustee agrees with the beneficiaries, and the Florida statutory requirements relating to date of the trust and the applicable rule against perpetuities allow it, another route to terminate a trust might be through nonjudicial modification under Fla.Stats. §736.0412. Alternatively, if the settlor is still living, common law modification or termination (judicial or nonjudicial) may be allowable by agreement between the settlor and beneficiaries, without regard to the trustee’s consent.

There are other avenues in Florida that can allow, under proper circumstances, for the modification or termination of a trust. A chart previously prepared by the authors of this posting that summarizes the various approaches (and updated for this case) is available for download here [follow the download instructions to save the file on your computer and then click the file to open it].

Horgan v. Cosden, 2018 WL 2374443 (Fla. 2nd DCA 2018)

Comments

Post a Comment

Popular posts from this blog

Goodstein v. Goodstein

Goodstein v. Goodstein ,  263 So.3d 78 (Fla. 4th DCA 2019) I started this blog in 2013, and this is the first time I have the opportunity to write about a case that I am actually involved in. This case involves a long-running dispute between the father of the decedent, the personal representative of the estate, and the decedent's children, the beneficiaries of the estate (the personal representative's grandchildren). The personal representative appealed a decision by the trial court which required all estate assets to be placed in a restricted depository. Restricted depositories have been common-place in Miami-Dade County for quite some time. Recently, South Palm Beach County has instituted as similar requirement. As a matter of course, all estates opened since the introduction of this policy have been required to place all assets in a restricted depository and assets may only be withdrawn with a court order. Here, the beneficiaries had concerns about their actions a...
Read more

Malleiro v. Mori, Mori and Corallo

Malleiro v. Mori , 182 So.3d 5 (Fla. 3d DCA 2015) This case serves as a lesson in rarely used words buried in the Florida Probate Code.  The Court was asked to determine whether an unsigned notarial will executed in Argentina was a valid will under the Florida Probate Code.  The Court ultimately held that because the Argentine will was unsigned, even though it was a notarial will, it was a noncupative will prohibited by the Florida Probate Code. The testator executed a valid will in New York distributing her real and personal property located in the United States.  Four months later, she executed a second will in Argentina.  The Argentine will was not executed with the usual formalities of American wills.  Instead, the testator orally pronounced her testamentary wishes to a notary who transcribed them in the presence of three witnesses.  The testator orally approved the typewritten will in the presence of the witnesses, and the notary signed and st...
Read more

Cantero v. Estate of Caswell

Cantero v. Estate of Caswell , --- So.3d --- (Fla. 3d DCA 2019) This decision involves an appeal of a trial court's order striking a claim as untimely. The claimant argued that his claim was timely because he was a reasonably ascertainable creditor who was not served with notice. The Court disagreed. The claimant argued that the estate should have known about his claim based on several conversations he had with the personal representative and the personal representative's attorneys. He was claiming an ownership interest in the decedent's real property because he paid for the property and paid the mortgage premiums over 20 years prior to the decedent's death for a 5 year period of time while he has in a relationship with the decedent. In his calls to the personal representative, the claimant apparently only mentioned that he had left some car parts in the garage and never said anything about an ownership interest in the property. He argued that he inquired, ...
Read more