I recently had a client who wondered if he could make changes to his irrevocable trust. In Florida, the answer is “maybe”. People make irrevocable trust for many reasons, one mayor reason being tax and benefits planning. In order to make a completed gift for tax reasons, and to eventually qualify it as a non—available asset for Medicaid, a donor has to part with control over the gifted asset. Making a gift to a trust that is irrevocable is one of the ways this can be accomplished. If your circumstances change, or tax laws change, can you modify or terminate the trust?
Thank you for reading this post, don't forget to subscribe!If certain conditions are met, you can alter or amend an irrevocable trust.
Florida statutes specifically allow for modification of irrevocable trusts in certain circumstances. For instance, by court order (Fla. Stat. Section 736.0410), to modify tax provisions (Fla. Stat. Section 736.04114), or where the trustee and all beneficiaries unanimously agree (Fla. Stat. Section 736.0412), just to name a few. But there are certain situations where none of the Florida statutes apply. For instance, a modification under Fla Stat. Section 736.0412 by agreement of trustees and beneficiaries can only be accomplished if the settlor has passed away and only with respect to a trust that was made irrevocable after January 1, 2001. That leaves some situations that are not covered by the Florida statutes.
Fortunately, Fla. Stat. Section 736.0412 states, “The provisions of this section are in addition to, and not in derogation of, rights under the common law to modify, amend, terminate or revoke trusts.” Estate planning practitioners have relied on this provision to modify irrevocable trusts under the common law. The common law of Florida states that, even while the settlor is still living, if the settlor and beneficiaries unanimously agree, an irrevocable trust may be modified. Because the common law rule applies to all irrevocable trusts, regardless of the date of creation, practitioners have often needed to rely on this rule in order to modify an irrevocable trust in Florida.
This common law rule was recently put to the test in a Third DCA case, Demircan v. Mikhaylov, wherein the court upheld that the common law rule was still valid: “The terms of a trust may be modified if the settlor and all the beneficiaries consent. Having the power to terminate, they obviously have the power to create a new trust or to modify or change the old. In Florida, this principle has long been recognized” (2020 WL 2550067 (Fla. 3d DCA May 20, 2020.)) the court confirmed that even if a particular situation does not fall within one of the methods for modification outlined in the Florida Statutes, modification under the common law is still available:
“Nothing in chapter 736 modifies or abrogates the common law modification rule adopted in Preston. This is because, while sections 736.0410-736.04115 and 736.0412, Florida Statutes, provide means of modifying a trust under the Florida Trust Code…the sections on modifying trusts do not provide the exclusive means to do so.” (Id., citing Minassian v. Rachins, 152 So. 3d 719, 724 (Fla. 4th DCA 2014))