How to Modify the Terms of a Trust

Estate planning offers individuals a number of options as they decide how to arrange property management and disposition after death. One of the more popular alternatives that confer a number of tax and financial benefits are trusts. Trusts involve holding an interest in property by one party, a trustee, for the benefit of another, a designated beneficiary. This estate plan is commonly chosen because trusts can be designed to avoid taxes and costs associated with probate, and structured to allow the person who set up the trust to use the funds during his/her lifetime. In order to ensure these important and carefully thought out legal documents remain relevant and enforceable, they should be reviewed on a somewhat regular basis to determine if changes are needed based on changes in a person’s personal or financial circumstances. Trusts are most often invalidated because of the death of a beneficiary, or a lack of proper funding. Regular review of these documents can catch such issues before it is too late.

The law recognizes that things change, and consequently, has procedures in place that permit the modification of a trust when the creator so desires. Anyone who has a trust would gain from a basic understanding of how to alter this legal arrangement.

Modifying Revocable Trusts

The modification procedures for revocable, or living, trusts versus irrevocable trusts are quite different. Revocable trusts may be modified by the creator at any time as long as he/she is not mentally incapacitated. This flexibility in changing the terms reflects the fact that since the creator is both trustee and beneficiary, any concerns about changes that would diminish the interest of a beneficiary are not present. Further, and most importantly, the creator retains control over the property, and thus has the right to treat the property however he/she wishes. In the same manner as a will is created, these modifications or amendments of a revocable trust must be in writing, signed by two witnesses, and notarized.

Modifying Irrevocable Trusts

On the other hand, if a trust is set up as irrevocable, the process to modify is more complicated because the creator has relinquished control over the property held by the trust, and thus any control over its use and/or management. With this kind of trust, court approval is needed to make any changes, and the circumstances under which a judge can permit modification are limited by Florida statute. However, judicial review of a modification essentially comprises assessing whether the proposed change furthers the creator’s intent or the beneficiaries’ interest. Consequently, a judge will modify an irrevocable trust if it is in the best interests of the beneficiaries or if a change is necessary to the continued operation of the trust, even if it requires deviation from the creator’s intent. When evaluating whether modification is appropriate, the court looks at:

• the purpose of the trust;
• the circumstances related to the trust’s creation; and
• evidence outside the trust documents themselves that illuminate terms or clauses that conflict or are ambiguous.

Talk to an Estate Planning Attorney

Creating an estate plan is an important process that is likely to affect your family’s financial future for years to come. Given the stakes, these arrangements should be made under the guidance of an experienced estate planning attorney to ensure the type of estate plan created is appropriate to your goals. The Tampa law firm of Bubley & Bubley, P.A. works with clients on a variety of estate planning matters, both during life and after death, and can assist you with all your estate planning needs. Contact us for a free consultation.

Resource:

leg.state.fl.us/STATUTES/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0736/Sections/0736.04115.html