7 Ways an Irrevocable Trust be Dissolved in Florida
All trusts can be broadly broken down into two big categories: revocable and irrevocable. A revocable trust is a trust that can be taken back. The settlor (the person who makes the trust) of a revocable trust can decide at any point to either amend or undo the entire trust. An irrevocable trust, on the other hand, is not so easily undone. With an irrevocable trust, the settlor cannot decide on a whim to undo the trust or take back all the assets. Transferring assets to an irrevocable trust means that you give up some of your rights to those assets. However, there are some situations where an irrevocable trust can be undone or modified.
1. When the trust no longer serves the interest of the beneficiaries.
Section 736.04115 of the Florida Statutes states that when compliance with a trust is no longer “in the best interest of the beneficiaries,” the court can amend that trust to be in their interest. This is true even if the trust is irrevocable. If you think about it, this makes a lot of sense. A trust is meant to benefit the beneficiaries (hence, the name “beneficiary”). If a trust is no longer benefitting the very people it is meant to benefit, then perhaps changes need to be made. Thankfully, Florida law allows for just that. However, this does not work if the terms of the trust expressly prohibit judicial modification.
2. When the purpose of the trust has been fulfilled.
Section 736.04113 of the Florida Statutes states that trust may be terminated or modified if the purpose of the trust has been fulfilled. This remains true even if the trust is still benefitting the beneficiaries. To understand when this might take effect, consider the following example. Tina sets up an irrevocable trust for the benefit of her son, Bobby. Tina states in the trust document that the purpose of the trust is “to pay for Bobby’s undergraduate education, so that he may become the first member of my family with a Bachelor’s degree.” Bobby then graduates from college with a Bachelor’s degree. However, there is still money in the trust, and Bobby would certainly benefit from that money being paid out to him. But the purpose of the trust has already been fulfilled because Bobby graduated with the Bachelor’s degree. Thus, modification or termination of the trust makes sense under these circumstances.
3. The purpose of the trust no longer exists.
Section 736.04113 of the Florida Statutes also states that a trust can be modified or terminated if the purpose of the trust ceases to exist. Imagine that a charitable trust has been set up for the purpose of helping those who suffer from a rare disease. However, that disease is later eradicated! This is wonderful news, but it leaves the trustee is a difficult position. The entire purpose of the irrevocable trust no longer exists. What should be done with the money? Thankfully, Florida law allows for judicial modification or termination of the trust when situations like this occur.
4. When the purpose of the trust has become illegal, impossible, impracticable, or wasteful.
Sometimes what began as a good purpose ends as a bad purpose. Section 736.04113 of the Florida Statutes contemplates just this problem. Imagine that a trust is set up for the purpose of creating a dog racing track. However, after the creation of the trust, dog racing becomes illegal. When a situation like this occurs, courts are allowed to either modify or terminate the trust. This is also true when the purpose of the trust becomes wasteful, impossible, or impracticable.
5. Unanimous agreement of the trustee and all qualified beneficiaries.
If the settlor of the trust is no longer alive, and all trustees and qualified beneficiaries agree, then a trust can be modified. This is explained in section 736.0412 of the Florida Statutes. Note that the agreement here must be unanimous. A single dissenting voice will ruin this exception to the rule, including a trustee’s objection.
6. The value of the trust property is insufficient to justify the costs of administration.
If a trust has less than $50,000 in assets, the trust can potentially be terminated if the trust property is insufficient to justify the cost of administering the trust. This is found in section 736.0414 of the Florida Statues. This exception is meant to prevent situations where a trust is simply too costly to continue existing. Imagine, for example, that a trust has only $6,000 in it but it will cost $4,300 to continue administering it over the next year. Clearly, at this point, the trust is no longer worth having and it ought to be dissolved.
7. The trust was created due to undue influence, fraud, duress, or mistake.
This exception is not found in a statute, but Florida courts have terminated trusts created under fraud, duress, mistake, or undue influence. This is similar to the rules surrounding wills. If the settlor did not voluntarily create the trust, then the court is free to step in and undo the wrong done.
Trust Attorney in Florida
If you have questions about setting up or managing a trust, consider setting a free consultation with a trust attorney. Trusts are complicated documents, and it is best to speak with someone who focusses on trust law before making any major decisions involving trusts.