February 15, 2012
Authored by: Luke Lantta
This week, let’s take a look at another case from Florida. You see a lot of trust instruments that ‘require’ a “corporate co-trustee.” There are a lot of good reasons why the grantor may have wanted a corporate co-trustee to serve with a family member, friend, or other co-trustee.
Then again, as time goes by, a corporate co-trustee may no longer make a lot of sense. It could be that the trust has been substantially administered or that the corpus is so small that a corporate trustee’s fee schedule just doesn’t work. That’s when the beneficiaries and trustees usually get together and go to court to have the trust modified to permit the corporate trustee’s resignation and have the trust modified either to allow a single trustee or to allow an individual to serve as co-trustee. These things are often done by consent order, which the judge is happy to sign to move another case off his or her docket.
But what happens if the trust instrument specifically prohibits judicial modification?
If that’s the case, then according to a Florida appellate court’s decision in Bellamy v. Langfitt the trust instrument means what it says – no modification.
In this action, the trust instrument provided: “If the corporate Trustee fails or ceases to serve, the remaining individual Trustees or Trustee shall choose a successor corporate Trustee, so that there shall always be a corporate Trustee after the Settlor ceases to serve.” Despite this language, a trial court approved a settlement agreement that allowed a corporate trustee to resign and, rather than having a successor corporate co-trustee appointed, allowed a corporation to act as custodian to receive and hold the income from the Trust assets and to pay the Trust expenses.
The appellate court determined that approval of the settlement agreement was in error because (1) the trust instrument required that there always be a corporate trustee after the settlor ceases to serve; and (2) the trust instrument specifically addressed, and prohibited, judicial modification of the trust by providing: “[t]o the extent permitted by law, I prohibit a court from modifying the terms of this Trust Agreement under Florida Statutes s. 737.4031(2) or any statute of similar import.”
This prohibition against judicial modification applied even if compliance with the terms of the trust is not in the best interests of the persons having a beneficial interest in the trust.
So, before you put a “no modification” clause in a trust instrument, stop and think about the practical effect of never being permitted to modify the trust.