tax code blurry

Validity of Trust Protector’s Amendment to Florida Trust

Appellate court looks at settlor’s intent

The Florida Trust Code (FTC) includes several provisions, grouped together, which set forth a number of familiar ways to modify a trust.1 One alternative method, however, finds its source elsewhere in the FTC.  It involves action taken by an individual commonly referred to as a “trust protector.”  This option is made available when the terms of the trust specifically confer on “a trustee or other person [i.e., the trust protector] the power to direct the modification or termination of the trust.”2

The trust protector statute was adopted from Section 808 of the Uniform Trust Code (UTC).  As the commentary to the UTC explains, the statute isn’t a mandatory provision and, thus, the settlor can tailor the provision to meet his particular intent.

Florida’s Fourth District Court of Appeal recently examined the state’s trust protector statute in detail.  The case, Minassian v. Rachins,3 appears to be the only reported decision interpreting this provision of the FTC.

Settlor’s Children Sue His Wife

Zaven Minassian created the trust at issue.  He and his wife were co-trustees.  On his death (and certain other circumstances, which occurred), the wife, as the remaining sole trustee, was to create a family trust from the remaining trust assets. 

What exactly was to happen to the family trust on the wife’s death, however, was the subject of much debate.  It ultimately became the issue at the heart of the appeal.  Either the family trust was to be divided into two separate shares for each of the settlor’s two children, as the children contended; or the family trust was to be terminated and distributed to two separate trusts for each of the settlor’s two children, as the wife contended.

Here’s why the difference made a difference.  The settlor’s children sued the settlor’s wife for breach of her fiduciary duties in administering the family trust.  The wife moved to dismiss for lack of standing on the grounds that the children weren’t beneficiaries of the family trust but, rather, beneficiaries of two new trusts to be created after the termination of the family trust.  The trial court sided with the children.  It held that the use of the term “shares” in the trust created a lack of clarity and that it would be unfair to deny the children a forum to litigate based on a lack of standing. 

Trust Protector Appointed

That’s when the settlor’s wife got creative.  Acting under a provision in the trust, she appointed a trust protector – the attorney who drafted the trust – to amend the trust.  The trust protector did so, and the amended provisions made it clear that, on the wife’s death, the family trust would terminate and its assets would be distributed to a new trust with a separate share for each of the children. 

Trial Court Ruling

The wife and the children each moved for summary judgment as to the validity of the trust protector’s amendment.  The trial court again sided with the children, this time holding that the trust unambiguously provided for the family trust to be divided into two shares.  The trial court further held that the amendment didn’t satisfy the requirements set forth in the trust protector provision of the trust because it didn’t further the settlor’s unambiguous intent and didn’t promote the beneficiaries’ interests.

Appellate Court Reverses

The appellate court reversed, holding that the trust protector’s amendment was valid. It began its analysis by addressing the children’s contention that the trust protector provision of the trust was itself invalid.  That provision authorized the settlor’s wife, on the settlor’s death, to appoint a trust protector.  The trust protector was empowered to modify or amend the trust provisions to correct ambiguities that might otherwise require court construction or to correct a drafting error that defeats the settlor’s intent, as determined by the trust protector in its sole and absolute discretion. The trust directed the trust protector to consider the interests of current and future beneficiaries as a whole and provided that its exercise of the power is binding and conclusive on all persons.

The appellate court rejected the children’s contention that the trust protector provision of the trust conflicts with Florida’s common law principle that a trustee may not delegate discretionary powers to another.  As the court noted, it was the settlor, not the trustee, who delegated these powers.  The appellate court also rejected the children’s contention that Fla. Sta. Sections 736.0410-04115 provide the only means available to modify a trust under Florida law. 

As for the validity of the trust protector’s amendment, the appellate court held that it fell within the scope of the powers provided under the trust.  The appellate court held that, contrary to the trial court’s conclusion, the trust was ambiguous with respect to whether the settlor intended to create, on the wife’s death, two shares or two new trusts for the children.  To demonstrate the point, the appellate decision walked through multiple conflicting provisions of the trust.  The appellate court held that, on the basis of that patent ambiguity, the trial court should have considered extrinsic evidence of the settlor’s intent in assessing the validity of the trust protector’s amendment. 

The trust protector himself presented such extrinsic evidence. The trust protector testified that he’d met with the settlor twice.  He testified that the settlor had intended for a new trust to be created for the children.  And he testified that the settlor’s very purpose for doing so was to prevent the children from challenging the manner in which the wife spent the family trust assets during her lifetime. 

The terms of the family trust supported the trust protector’s testimony.  The trustee of the family trust was authorized, in its sole and absolute discretion, to make distributions for the wife’s health, education and maintenance (HEM).  The trust specifically directed the trustee to be mindful that the settlor’s primary concern and objective was for the HEM of his spouse and that the preservation of principal was less important than the accomplishment of these objectives.  In other words, the trust protector’s amendment furthered the settlor’s intent.  

Moreover, as the appellate court noted, it was the settlor’s preference to have a trust protector appointed for the purpose of resolving any ambiguities or imperfections in the drafting of his trust.  The trial court’s decision would have removed that power from the trust protector and placed it in the hands of the court instead, in contravention of the settlor’s intent.

Endnotes

  1. See Fla. Sta. Sections 736.0410 – 736.04115. 
  2. Fla. Stat. Section 736.0808(3).
  3. Minassian v. Rachins, 152 So. 3d 719 (Fla. 4th DCA 2015).

 

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