It may seem overly skeptical to wonder whether the wishes outlined in a trust or estate plan will be honored after your demise, but maybe your skepticism is warranted. Until recently, courts have leaned in favor of beneficiaries in terminating trusts or overturning spendthrift provisions.
Last month, however, the Second District Court of Appeals of Florida ruled in Horgan v. Cosden that the beneficiaries of an irrevocable trust cannot unilaterally terminate the trust if early termination of the trust would “frustrate the purpose of the Trust.”
What’s remarkable about this ruling is that all beneficiaries agreed and wished to have the trust terminated, yet the court upheld the grantor’s original intent. In reaching this conclusion, the Court noted that the “settlor’s intent is the polestar of trust interpretation” and relied upon the fact that the grantor “included spendthrift provisions designed to protect each beneficiary’s interest.”
This is reassuring to grantors who wish to protect beneficiaries from themselves by having funds held in trust. The ruling favored the wishes of the deceased even in the face of agreement among the beneficiaries and compelling evidence that terminating the trust would be more cost effective.
“Although the decision is not binding on courts in West Virginia, it is a good decision for attorneys wishing to give estate planning clients some assurance that their wishes will be respected after they have passed away,” explained John Hussell of Wooton, Davis, Hussell & Ellis, LLC.
“It is also a good decision for corporate trustees who are obligated to carry out the terms of a trust, even in the face of opposition from beneficiaries who wish to deviate from the grantor’s intent and get ‘their money now,’ as the Court noted,” Hussell added.
The word of caution to beneficiaries is that having the consent of all benefiting parties may not be sufficient to revoke or change a trust.
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