Does Your Trust Need a Facelift?

Hey, we do live in South Florida. But seriously, I come across many trusts created in the 80s, 90s and early 2000s where life was slower, and trusts were irrevocable. These irrevocable trusts had a goal to reduce the size of a person’s estate to avoid estate tax. If you’ve been reading my  newsletters, you know that most of us no longer worry about estate tax and our trust goals are now more socially focused. We base our trust language on the individual needs of the family dynamics and the proverbial tax tail doesn’t wag the dog as often.

So, what do we do with these old trusts and how do we fix an irrevocable trust? There are a few ways to modify or terminate an irrevocable trust. First, a trust may be modified or terminated under the provisions of the trust itself. The trust may allow the trustee to modify or terminate the trust if circumstances have changed, if the trustee determines it is in the best interests of the beneficiaries, or if the trust assets are under a certain dollar amount set forth in the trust.

The second option is to look at Florida statute where irrevocable trusts created after January 1, 2001 may be terminated in whole or part upon the unanimous agreement of the trustee and all qualified beneficiaries. Also, a trustee is authorized to terminate any trust under $50,000 per Florida Statute.

If the trust is older than 2001, a Court may issue a Judicial termination of a trust, in whole or in part, 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.

The sole reason that a trust exists is to serve the beneficiaries. If the trust cannot meet the needs of the beneficiaries, it may require a face lift.