Q: I got some bad advice from a financial adviser and created an irrevocable trust to benefit charity. After I created the trust, I found that the tax benefits and operations of the trust were not as advised. Is there anything I can do to dissolve the trust and take back the assets?
A: Effective July 1, 2007, Florida adopted a modified version of the Uniform Trust Code, known as the Florida Trust Code. The new code has a number of provisions to allow correction of mistakes where trusts do not contain provisions authorizing certain changes.
The statute provides that a person with legal capacity may create a trust for any lawful purpose, as long as the trustee has duties to perform, identifiable property and an identifiable beneficiary or beneficiaries. A trust or any portion of a trust is void to the extent the trust or portion of the trust is the product of fraud, duress, mistake or undue influence.
Property is broadly defined as anything that can be the subject of ownership, allowing great flexibility in creation of trust. The requirement of ascertainable beneficiaries is easy to understand, as the trust could not be easily administered if the trustee could not determine the beneficiaries. Charitable trusts are excluded from the requirement of ascertainable beneficiaries, as the charitable purpose is deemed sufficient.
The new law carries forward and modifies prior statutory authority to modify or terminate irrevocable trusts in three separate sections. These sections provide authority to amend the administrative or distributive terms of a trust, partially or completely terminate a trust or to direct, permit or prohibit specific acts by the trustee.
The three new statutory provisions allow the court to modify an irrevocable trust in a manner deemed consistent with the intent of the person creating the trust (Settlor) where the trust’s purposes have been fulfilled or become illegal, impossible, wasteful or impractical. The court can also modify a trust when it is in the best interest of the beneficiaries.
The statute even provides for modification without resort to the courts in any of the ways referenced previously in this article, as long as all trustees and all qualified beneficiaries agree.
The new law provides two new modification or termination provisions. One allows a trustee to obtain court approval to modify or terminate a trust where its value no longer justifies the cost of administration. The other allows modification to attain the tax objectives of the person creating the trust.
Previous Florida case law allowed trusts to be reformed to cure drafting mistakes. The new statute is much more forgiving. As long as you can prove by clear and convincing evidence that both accomplishment of your intent and terms of the trust were affected by a mistake of law or fact, the court my reform or terminate a trust. Proof by clear and convincing evidence is a more difficult test than the usual standard in a civil case (greater weight of the evidence), but, it is a whole lot better than having no option at all.
As with all legal matters, you will be best served by retaining an experienced attorney at the earliest possible time. Delay may prejudice your case and make correcting the mistake more difficult and expensive.
William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to email@example.com or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.