Can a Revocable Trust be Made Irrevocable in Florida?
Yes, a revocable trust can be converted into an irrevocable trust in Florida. The simplest way to accomplish this is through a trust amendment.
This article explores the mechanics of converting a revocable trust to an irrevocable one, the disparities between the two trust types, some motivations behind opting for irrevocability, and a few potential drawbacks associated with this decision.
How to convert a revocable trust into an irrevocable trust
There are three primary ways for a revocable trust to become irrevocable: through the trust terms, through a trust amendment, or through the death of the trust grantor.
If a revocable trust identifies an event which creates an irrevocable trust, then the occurrence of such an event will result in the trust becoming irrevocable. For example, a trust may have a term stating that it will become irrevocable upon the incapacity of the trust grantor (the person who created the trust). If a trust contained such a term, then the grantor’s incapacity would trigger that clause, leading to the creation of a irrevocable trust. A trust could theoretically be drafted to have nearly anything trigger irrevocability, although most revocable trusts do not contain any such trigger clauses.
A revocable trust could also become irrevocable by means of a trust amendment. A revocable trust can typically be amended in any way by the grantor. Thus, the grantor could amend the trust into an irrevocable trust. This would be done by replacing all language referencing the grantor’s power to revoke the trust with language explicitly stating that the grantor has no ability to revoke or amend the trust. To be effective, this amendment would need to comply with the terms of the original trust instrument.
Finally, a revocable trust will typically become irrevocable after the death of the trust grantor. Although a trust could theoretically deviate from this rule, the overwhelming majority of revocable trusts do not. A revocable trust almost always becomes irrevocable the moment the trust grantor passes away.
What is the difference between a revocable trust and an irrevocable trust?
The grantor of a revocable trust retains complete control over that trust, but the grantor of an irrevocable trust has relinquished control over the trust.
A revocable trust is one in which the grantor of the trust (the person who created the trust) retains complete control. That means that the trust can be modified, amended, or revoked entirely. In addition, a grantor can move assets in and out of a revocable trust at will. For tax purposes, all assets in a revocable trust are considered to be the assets of the grantor.
An irrevocable trust is one in which the grantor has relinquished control. With limited exceptions, irrevocable trusts cannot be amended at will or revoked by the grantor. A grantor may place assets into an irrevocable trust, but likely the grantor will be unable to take the assets back without paying for them (and potentially will need to get the consent of others first). Irrevocable trusts are often treated as separate taxable entities from the grantor, and often they require a separate tax identification number. The trustee of an irrevocable trust in Florida will be required to account at least annually to the beneficiaries of that trust.
Why would someone want to make a trust irrevocable?
Irrevocable trusts potentially can be used for tax planning, Medicaid planning, and asset protection. These are the most common goals when a trust is made irrevocable by a living settlor. In each case, the irrevocability is only one piece of a larger plan to achieve a specific outcome. Simply making a trust irrevocable will rarely, if ever, deliver any tax, Medicaid, or asset protection benefit unless some additional steps are taken. However, irrevocability can be an essential part of a larger strategy.
Are there any downsides to making a trust irrevocable?
Some disadvantages of irrevocable trusts include:
Loss of control. Once you establish an irrevocable trust, you typically relinquish control over the assets placed within it. Absent a court order, you cannot amend or revoke the trust without the unanimous consent of all beneficiaries and trustees, which could limit your ability to adapt to changing circumstances or preferences.
Less flexibility. Unlike revocable trusts, which can be adjusted as needed, irrevocable trusts are generally inflexible. Changes to beneficiaries, terms, or distribution provisions can be difficult or impossible to make after the trust is created. There are some potential ways to modify an irrevocable trust, but they typically require court action, consent of all parties involved, or both to enact.
Need for accountings. Once a trust becomes irrevocable, annual accountings will be due to all qualified beneficiaries of the trust. This can include those who will not inherit from the trust until after you pass away. Unless all the qualified beneficiaries waive their right to an accounting, this will likely be a significant expense.
Fiduciary duty. The trustee of an irrevocable trust owes a fiduciary duty to all qualified beneficiaries (a group that may be broader than you realize). This is true even if the trustee is the same person that created and funded the trust. Thus, if you put assets into an irrevocable trust, you may find that you are no longer free to treat those assets as your own, even if you are the sole trustee of the trust. Instead, the assets will be required to be managed in accordance with the terms of the trust and with the terms of the Florida Trust Code.