Can a trust protector amend a trust in the middle of litigation, after the trial court has ruled adversely, to reverse the trial court’s decision? A 2014 case from Florida holds in the affirmative, that a trust protector can amend a trust to undue an adverse ruling of a trial court.
In Minassian v. Rachins, (Fla. 4th DCA 2014) the deceased, Mr. Minassian, created a trust that became irrevocable at his death. The trust was to be divided into two separate trusts, a Marital Trust and a Family Trust. The Family Trust was to be administered for the lifetime benefit of Mrs. Minassian. At her death, the Family Trust was to terminate and the remainder distributed to Mr. Minassian’s children.
Only the Family Trust was created, because the Marital Trust was not needed due to the fact that the trust corpus was not high enough to be subject to estate tax. Mrs. Minassian became the sole trustee and administered the trust against the wishes of Mr. Minassian’s children, who then sued Mrs. Minassian for breach of trust.
A Dispute Over Standing To Sue For A Breach Of Trust
Mrs. Minassian moved to dismiss the complaint, contending that the children lacked standing because they were not beneficiaries of the Family Trust. She contended that the language of the Family Trust stated that it would terminate at her death and create new trusts for the children. The language of the trust was as follows:
All trust property not previously distributed under the terms of my trust shall be divided into a separate trust share for each of the children.
Based on this and other “separate share” language of the trust, the trial court concluded that new trusts were not created, that the separate share trusts were to be created as separate shares of the Family Trust, and therefore refused to dismiss the lawsuit on lack of standing grounds.
The trust instrument provided that the wife was permitted to appoint a trust protector after the husband’s death to modify or amend the trust, so as to correct ambiguities or correct drafting errors. Any amendment must benefit the beneficiaries as a group or further the settlor’s wishes.
The wife then did appoint a trust protector, who proceeded to modify the trust to change the provision from creating separate shares at the wife’s death to creating totally new trusts at the wife’s death. Presumably this would defeat the children’s standing to challenge the wife’s actions as trustee, because the children would no longer be beneficiaries of the Family Trust, even after the wife’s death.
The children then filed a supplemental complaint to challenge the amendment to the trust. The trial court held that the trust instrument was not ambiguous (and thus not in need of amendment) because the Family Trust was one single trust, which itself creates separate trust shares. The trial court then struck the amendment, as follows:
The court found the trust protector’s amendment was improper because it did not benefit the beneficiaries as a group or further the settlor’s probable wishes, as required under the trust. The court found the amendment did not benefit all the beneficiaries because it would leave the children without the ability to challenge the actions of the wife as trustee, leaving her “to do as she wishes without having to annually account to the children . . . .”
The court found the trust protector’s amendment also did not further the settlor’s probable wishes in an appropriate way because the settlor “clearly intended to provide for his children from the Family Trust at the time of his wife’s death[.] The children were to share in whatever remained.”
Can A Trust Protector Amend A Trust?
The appellate court allowed the amendment by the trust protector to stand. First, the court held that Florida law allows for trust protectors to amend trust instruments. Section 736.0808 of the Florida Trust Code permits the terms of a trust to confer on another person the power to modify or terminate a trust. This section was adopted from the Uniform Trust Code, which lays out in additional detail how a trust protector might be used.
The appellate court next reasoned that the trust itself was ambiguous as to whether the use of the term trust “share” was intended to create new trusts at the death of the wife. As such, it could be amended by the trust protector.
From the trust protector’s affidavit, it appears that the husband settled on the multiple-trust scheme for the very purpose of preventing the children from challenging the manner in which the wife spent the money in the Family Trust during her lifetime. The trust protector also testified that his law firm always recommends this split-trust approach, rather than what he referred to as a “pot trust . . . where everything goes into the pot for the beneficiaries.” He testified, “We have never done it the other way you’re talking about, about keeping the same trust.” On that basis, he prepared the amendments to the trust to reflect this intent of the testator.
Based upon our conclusion that the trust agreement was ambiguous and the trust protector’s amendments were made to effectuate the settlor’s intent, the amendments that he made to the trust are within his powers. The amendments may have disadvantaged the children, but the trust protector was authorized to correct the ambiguities with the limitation that he act either to benefit a group of beneficiaries or to further the husband’s probable wishes. He acted to correct ambiguities in a way to further the husband’s probable wishes. As the drafting agent, he was privy to what the husband intended.
It was the settlor’s intent that, where his trust was ambiguous or imperfectly drafted, the use of a trust protector would be his preferred method of resolving those issues. Removing that authority from the trust protector and assigning it to a court violates the intent of the settlor.
Although the proceedings still continue, the ultimate result may be a forgone conclusion – that the children are not beneficiaries of the Family Trust and therefore have no standing to challenge the administration of the Family Trust.
On the other hand, the remaindermen of a trust should always have standing to challenge the administration of a trust. Whether the remaindermen of the trust receive separate shares of the trust at termination or the remainder interests pour over into new trusts does not seem to be a distinction with any significance that I can determine. The actions of a trustee should always be subject to challenge by the persons affected by such actions.
Read the briefs here.