Revocable Trusts: What Are They and How to Change Them
Developing and executing sound plan to manage one’s assets during his/her lifetime and after death is an important piece of a person’s financial stability. While there are many options for managing finances during one’s life, few permit much flexibility as to what to happens to these assets after death. One exception to this rule is the revocable trust. This legal document allows a person to actively administer his/her property while living and distribute any remaining assets after death. The creator is called the grantor or settlor, and the person who manages the trust is called the trustee. The grantor can name him/herself as the trustee or designate someone else. Most trust agreements permit the grantor to withdraw money or assets from the trust in any amount. A big advantage offered by revocable trusts is that the grantor can modify or terminate the trust at any point as long as he/she is not incapacitated, which allows the grantor to account for unanticipated changes in circumstances that can affect the operation of the trust. A second important advantage is that if the grantor is incapacitated, the successor trustee can take over management of the trust and any investment decisions, which could avoid the need to obtain a court-appointed guardian for the property. One crucial element that will determine whether a person’s trust is effective or not is the need to ensure that grantor’s property is actually transferred to the trust prior to death. This formal transfer is necessary to fund the trust so it has assets to distribute to the named beneficiaries. But, what happens when the grantor realizes that changes need to be made to the trust and decides to modify it? How is this accomplished so the change is recognized by the law and avoids potentially invalidating the trust? A discussion of what is required to effectively revoke or amend a trust under Florida statute will follow below, as well as the effect of a recent court decision on this procedure.
Ideally, the trust instrument itself will include provisions on how to modify or revoke its terms. But, if there are no provisions on this issue, Florida law allows a grantor to change a trust using the following methods:
- by executing a will or amendment to a will after the trust was created that specifically references the trust or expressly distributes property that would otherwise pass under the terms of the trust, or;
- some other method that displays “clear and convincing evidence” of the grantor’s intent.
If there is only one grantor, he or she has free rein to change the trust, but if there is more than one, such as when a trust is jointly created by a husband and wife, there are limitations. In this situation, community property can be revoked by either grantor acting alone, but amendments to the trust must be executed jointly. Separate property held in the trust can be revoked or modified to the extent of the grantor’s contribution.
Recent Court Decision
A recent decision by the Third District Court of Appeals may complicate using a will to change the terms of a revocable trust. The grantor established and funded a revocable trust, but did not provide for a method of altering it. Four years later, the grantor executed a will that generally revoked earlier trusts and wills but did not specifically refer to the earlier revocable trust. Under these circumstances, the court had to determine if the general revocation in the will was enough to show “clear and convincing evidence” of the grantor’s intent. While the appellate court did decide a will could be used to show this intent, it indicated that additional evidence will need to be presented to produce enough evidence for the court before a change to a revocable trust will be effective.