Terminating an Irrevocable Trust in Florida
Under Florida law, many irrevocable trusts can be terminated with or without court approval. An irrevocable trust can be terminated without court approval, known as a "non-judicial" termination, when the trustee and all qualified beneficiaries agree to terminate the trust. Note, however, that this only applies to most trusts created after January 1, 2001. For trusts created before that date, judicial intervention is usually required.
For trusts that require judicial involvement to terminate, the court, either of its' own volition, or by petition of a trustee of qualified beneficiary, may terminate the trust for a variety of reasons.
The Grounds to Terminate an Irrevocable Trust
When court approval is required, there are several grounds by which qualified beneficiaries may petition to terminate a trust, namely:
- The purposes of the trust have been fulfilled, or the trust's material purpose no longer exists.
- The trust is no longer in compliance with state law.
- The trust’s administration or conditions are impractical or impossible to carry out.
- Continued compliance with the terms of the trust would defy the settlor’s original intent.
Additionally, qualified trust beneficiaries can petition the court to terminate a trust if and when they have cause to believe that the trust is not being properly administered. A trust could be terminated if:
- The trust’s administration is not economical. Smaller trusts holding less than $50,000 in assets can be termed “uneconomical” if the value of the trust’s assets cannot justify the costs of administration. This may also apply to trusts holding more assets if the value of the trust property is generally insufficient to justify the cost of administration.
- The trust was not established in accordance with state law. If a trust was created under improper circumstances—such as undue influence, fraud, or duress—the trust could be terminated.
- The trust has been impacted by a merger. Under certain circumstances, a trust may be merged with another trust. When trust assets are transferred into another trust, the original entity may be dissolved if it no longer serves its intended purpose.
Finally, when legal and equitable interests of the trust merge, i.e. the only assets owned by the trust are also owned by the individual acting as the sole trustee and beneficiary, the trust can be terminated.
Alternatives to Terminating a Trust
Terminating a trust can be time-consuming. However, beneficiaries often have options beyond taking a trust to court.
If a trust’s beneficiaries have pressing questions about a trust’s administration or assets, they may pursue:
- A settlement agreement. Trust disputes can typically be resolved through binding, non-judicial settlement agreements. During a settlement negotiation, beneficiaries and trustees work to identify fair and equitable solutions. A settlement could afford heirs more control over their legacy while ensuring that the trust’s assets are not wasted in litigation.
- Trust modification. While trusts are usually established in good faith, a trust may not have clearly defined terms and conditions. If a qualified beneficiary believes that a trust is not fulfilling its intended purpose, they could request that the trust be modified to better reflect the settlor’s intent or better comply with changing circumstances.
- Trust reformation. Any interested party, including qualified beneficiaries, may request that the trust be reformed if its terms do not honor the deceased settlor’s intent. However, trust reformations are typically only approved under certain circumstances. For example, a trust may be reformed if the trust’s conditions contained typos, mistakes, or ambiguous language.
- A reappointment. Trustees can be removed for a variety of reasons. If a trustee has breached their fiduciary duty, failed to effectively administer the trust, or otherwise abrogated their responsibilities, the qualified beneficiaries could ask the court to appoint another trustee.
Trust disputes can often be settled out of court. However, interested parties seeking to modify a trust must typically have standing to request any significant changes to the trust and its provisions. Gathering the evidence needed to change a trust’s terms or administration can be time-consuming, especially if the amendment would impact other beneficiaries.
Contact a Florida Trust Attorney Today
An irrevocable trust is a powerful estate planning tool. Under competent administration, a trust could protect a family for generations. However, when trusts are not run in accordance with the settlor’s intent, heirs can be deprived of their inheritance and forced to turn to the court for relief.
You should never be forced to accept trust mismanagement. Please send DeLoach, Hofstra & Cavonis, P.A., a message online or call us at 727-397-5571 to speak to a probate litigation attorney and schedule your initial consultation.