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Commuting an Irrevocable Trust

Posted on by Oregon-admin
Commuting an Irrevocable Trust

After the settlor of an irrevocable trust passes away, the beneficiaries of the trust may think they would be better off dissolving the trust and taking the assets. They may be allowed to do so.

When people create irrevocable trusts to control how beneficiaries will receive assets from the trust, the beneficiaries do not always like it. They would often prefer to have the assets outright and control them for themselves. This was seen recently in a case in Florida.

In the Florida case, a settlor created an irrevocable trust and funded it with assets totaling $3 million. His son was named as the beneficiary and was entitled to interest income from the trust for his life. Three educational institutions were named as the remainder beneficiaries. The son and the remainder beneficiaries petitioned the court to require the trustee to commute or modify the trust so the beneficiaries could all receive their share of the trust assets. Wills, Trusts & Estates Prof Blog discusses this technique in “Court Stops Beneficiaries From Commuting Trust.”

Florida law provides three different reasons for permitting an irrevocable trust to be commuted by the court, which are similar to most state laws on the subject. One reason is if the purposes for which the trust was created have been fulfilled or are otherwise a problem. For example, the purposes may be impossible to fulfill or illegal. The second reason is if unanticipated circumstances have made complying with the terms of the trust, contrary to the purposes of the trust. The final reason is if the material purpose for which the trust was created no longer exists.

In this case, the trial court ruled in favor of the son on a summary judgment. However, on appeal the ruling was reversed, as the court found that the settlor’s intent was the decisive factor and the trust could not be dissolved merely because the beneficiaries wanted to do so.

Reference: Wills, Trusts & Estates Prof Blog (June 3, 2018) “Court Stops Beneficiaries From Commuting Trust.”



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