PROBATE CORNER
By: David M. Garten, Esq.
The doctrine of equitable deviation has been applied to allow trustees to depart from the terms of a trust instrument where there has been an unanticipated change in circumstances that threatens to defeat or substantially impair the material purpose for which the trust was created. See §736.04113, F.S. which reads in relevant part:
(1) Upon the application of a trustee of the trust or any qualified beneficiary, a court at any time may modify the terms of a trust that is not then revocable in the manner provided in subsection (2), if: …(b) Because of circumstances not anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust;…” .
Unanticipated circumstances. Under the “‘equitable deviation'” doctrine, the objective is not to disregard the intention of the settlor, but to give effect to what the settlor’s intent probably would have been had the circumstances in question been anticipated. Restatement (Third) of Trusts §66, Comment a. See also Scott on Trusts §167. Although the unanticipated circumstances are likely to be circumstances that have changed since the creation of the trust, the rule does not require changed circumstances; it is sufficient that the settlor was unaware of the circumstances in establishing the terms of the trust. Restatement (Third) of Trusts, §66, Comment a.
Deviation must advance the trust’s material purpose. Upon a finding of unanticipated circumstances, the court must further determine whether a proposed modification or deviation would defeat or substantially impair the accomplishment of a material purpose of the trust. See §736.04113(1), F.S. The fact issue that controls the case is the settlor’s intent in creating the trust. Dennis v. Kline, 120 So. 3d 11 (Fla. 4th DCA 2013). Deviation, including termination, merely because it would be more advantageous to the beneficiaries is inappropriate. Rather, the trust must be so inefficient that its continuation would necessarily interfere with the trust’s purpose. Church of the Little Flower v. US Bank, 979 N.E.2d 106 (Ill. App. 2012).
Admissible evidence. In exercising discretion to modify a trust, the court must consider the following: (a) the terms and purposes of the trust, (b) the facts and circumstances surrounding the creation of the trust, and (c) extrinsic evidence relevant to the proposed modification. The court must also consider spendthrift provisions, but the court is not precluded from modifying a trust because the trust contains a spendthrift provision. See §736.04113(3), F.S.
Remedies. In modifying a trust, a court may: “(a) amend or change the terms of the trust, including terms governing distribution of the trust income or principal or terms governing administration of the trust; (b) terminate the trust in whole or in part; (c) direct or permit the trustee to do acts that are not authorized or that are prohibited by the terms of the trust; or (d) prohibit the trustee from performing acts that are permitted or required by the terms of the trust.” See §736.04113(2), F.S. But see M. Begleiter, Administrative and Dispositive Powers in Trust and Tax Law: Toward a Realistic Approach,” 36 Univ. of Florida L. Rev. 957 (1984) wherein the author concluded that “[t]he clear rule in this country is that a court will not permit deviation from the dispositive terms of a trust in favor of a beneficiary if to do so will reduce or eliminate the interests of other beneficiaries.”
Case study. In Skarsten-Dinerman v. Living Trust, 2021 Minn. App. Unpub. LEXIS 996 (Minn. App. 2021), a beneficiary, Skarsten-Dinerman, sought to modify the trust to allow the immediate sale or distribution of the trust’s assets consisted of four parcels of land. The trial court denied the petition and the appellate court affirmed. On appeal, the beneficiary argued that the following unanticipated circumstances justify modifying the trust: (1) Three of the six beneficiaries have special needs trusts. If the beneficiaries without special needs trusts pass away first and leave no descendants, the trust property will be distributed to the beneficiaries with special needs trusts and placed in those trusts. When those beneficiaries pass away, some or all of the funds may then go to the state as reimbursement for medical services paid for by the state. And (2), the decrease in the value of the trust’s farmland assets along with the “negligible” rate of return the trust receives by renting the land. The appellate court, in rejecting the beneficiary’s arguments, reasoned:
With regard to the first argument, “the state’s ultimate interest in the special needs trusts is speculative because it depends on which beneficiaries pass away first. Further, the state would still have an interest in the trust assets under the proposed modification because the proceeds from any sale of the trust assets would be placed in the special needs trusts. And ultimately, the state’s interest would simply constitute repayment after the beneficiaries’ deaths for medical assistance received during their lifetimes. This outcome, which benefits the beneficiaries of the special needs trusts as intended, is not a changed circumstance that justifies modifying the trust.” With regard to the second argument, “Milton was a farmer who likely would have anticipated fluctuations in the farm economy, yet he chose to place his land in the trust as a source of steady income for his children in the future. As discussed above, the trust is still earning income by leasing the land. Further, the value of the land may fluctuate upward before the trust property is ultimately distributed. Finally, and most importantly, even assuming these circumstances relating to the farmland were unforeseen, selling or distributing the land at this time as Skarsten-Dinerman proposes would thwart a material purpose of the trust: to provide the beneficiaries with a continuing source of annual income from the farmland.”
In Prince v. Lynch, 2008 R.I. Super. LEXIS 132 (R.I. Super.10/22/08), the court found the following material facts to be changed circumstance relevant to the Court’s determination of whether to apply the doctrine of equitable deviation to terminate the Trust: (a) changes in circumstances affecting the interpretation of the Trust provisions and the administration of the Trust since the Settlor executed the Trust in 1932; (b) changes in the law over the past seventy-five years; and (c) the proliferation of complex and extended litigation involving the Trust and its beneficiaries. “The Settlor set out to create a legacy to support and benefit his descendants. Clearly he did not foresee that the Trust would engender expensive legal disputes regarding its interpretation and administration.”
For additional cases discussing the application of the doctrine of equitable deviation, refer to the Restatement (Third) of Trusts, §66.