Due to the increasing usefulness and popularity of trusts over the last several decades, many families now have one or more trusts which were either irrevocable upon their creation or have become irrevocable as a result of the death of the trust creator. As the years pass and family circumstances change, the provisions of some irrevocable trusts may become less and less appropriate for the needs of the family and it may become desirable to amend or terminate the trust. Contrary to popular belief, in almost all cases an irrevocable trust can be amended or revoked. Often times, such modifications can be easily accomplished.
Many trust documents, especially trusts created in recent years, contain provisions to facilitate an amendment or termination if appropriate to better serve the needs of the family. The trust may allow the appointment of a special trustee to revise the trust consistent with family wishes or to transfer the trust assets to a new trust with more appropriate terms. If that flexibility is missing from the trust document, state law may permit a necessary modification or termination of the trust. In recent years many states, including Florida, have liberalized their laws to simplify making needed changes to irrevocable trusts. In most cases such changes can be made by a simple agreement among the trustee and beneficiaries. Occasionally, trust modifications may require court approval, but that is also easier to obtain under the new trust laws.
The need to change trustees is a common situation where a trust revision may be useful. Occasionally, when the trust creator has depended on individual trustees, the smooth administration of the trust may be jeopardized as those trustees die, retire, or become incapacitated or infirm. While “family trustees” might simply be succeeded by younger-generation family members, that may not be a desirable solution in some cases. Another awkward situation may arise where a trusted advisor or other non-family member has been appointed as an “independent trustee” and he or she is no longer suitable to fulfill that function. Likewise, the suitability and acceptability of institutional trustees can change over time. Where it is important to change the succession of trustees one should first look to the trust document which may contain a provision permitting a current trustee or the beneficiaries or some other person to revise the trustee succession as stated in the document. If that flexibility is not present in the document then the problem by be solvable through an agreement among the interested parties or court approval may be sought.
Conflicts among trust beneficiaries is another situation where a trust revision may be important. Current income beneficiaries often wish to focus on investments that produce a high income return and are not concerned with long-term capital appreciation. Remainder beneficiaries, who will receive the trust after the income beneficiaries are deceased, may prefer to focus on investments producing long-term growth and capital protection and are not concerned with maximizing current income returns. In that situation, state law, or an agreement among the parties, may permit the trustee to simply pay a reasonable fixed annual return to the income beneficiary regardless of the trust’s actual income. In that case the trustee can shift to an investment portfolio designed to produce the greatest total return without concern as to what portion of the return is the result of current income or capital appreciation. The mix of current income and capital appreciation should not be a concern to the income beneficiary where he or she is receiving a fixed annual return regardless of investment performance. The remainderman should also be satisfied since the trustee can now seek the greatest total return regardless of the amount of current income being produced.
Sometimes a trust may be established to benefit two or more beneficiaries simultaneously. In that case disagreements may arise between those current income beneficiaries concerning trust investment policy or the frequency or size of trust distributions. In that situation, it may be appropriate to divide the trust into separate trusts for each of the beneficiaries. Then the trustee of each separate trust can adopt investment and distribution policies that are more tailored to the individual needs of the respective beneficiary. Similarly, we sometimes see situations were there is a multiplicity of trusts that have been created over a number of years by members of different generations. In that case it may be helpful to merge the several trusts into one or two separate trusts that can be more efficiently and consistently administered.
The foregoing is just a sampling of the many situations where the division, merger, revision or termination of one or more irrevocable trusts may produce huge benefits in terms of administrative efficiency, family harmony, wealth preservation or other benefits to the family. Under the newly evolving law of trusts, achieving such amendments or revocations is increasingly easy and should not be overlooked in your planning.