By: David M. Garten, Esq.
ARTICLE: Procedure for Terminating an Irrevocable Trust
What is the proper procedure for terminating an irrevocable trust after the settlor’s death?
A trust terminates to the extent the trust expires, or is revoked, or is properly distributed pursuant to the terms of the trust. See §736.0410(1), F.S.; Schwarzkopf v. American Heart Asso., 541 So. 2d 1348 (Fla. 3rd DCA 1989) (the trust instrument may provide how long the trust shall continue. In such a case the trust will be terminated at the expiration of the period fixed by the terms of the trust).
On termination of the trust, the trustee shall provide a final trust accounting to each qualified beneficiary. The final accounting must include a plan of distribution for any undistributed assets. See, §§736.0813(1)(d) and 736.08135(2)(f), F.S.
Assuming all beneficiaries agree to the final accounting, to the plan of distribution, and to sign the Receipt, Release, & Refunding Agreement, the trust may be terminated without court authorization. Alternatively, it may be necessary to obtain a court order to approve the accountings and terminate the trust.
In addition, although a trust instrument directs termination of the trust and distribution of the principal to the beneficiaries upon the settlor’s death, the trustee cannot make complete distribution until provision has been made for all the expenses, claims, and taxes the trust may be obligated to pay, including the expenses and obligations of settlor’s estate, and certainly not before those amounts have been fully ascertained. See, §736.05053; First Union Nat’l Bank v. Jones, 768 So. 2d 1213 (Fla. 4th DCA 2000); Sheaffer v. Trask, 813 So. 2d 1051 (Fla. 4th DCA 2002); Parker v. Shullman, 983 So. 2d 643 (Fla. 4th DCA 2008). Compare, §736.0817, F.S. which reads:
Distribution on termination.—Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust property to the persons entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes. The provisions of this section are in addition to and are not in derogation of the rights of a trustee under the common law with respect to final distribution of a trust.
Failure to provide complete and accurate accountings and a 6 month a limitation notice [§736.1008(4)(c)] can substantially delay the termination process. Pursuant to §736.1008(4)(a), F.S., an accounting adequately discloses a matter if the document provides sufficient information so that a beneficiary knows of a claim or reasonably should have inquired into the existence of a claim with respect to that matter. The limitation period on all claims by a beneficiary against a trustee for breach of trust is extended to four years for: (a) all matters adequately disclosed in a trust disclosure document without a 6 month a limitation notice, and (b) all matters not adequately disclosed in a trust disclosure document if the trustee has issued a final trust accounting and has given written notice to the beneficiary of the availability of the trust records for examination and that any claims with respect to matters not adequately disclosed may be barred unless an action is commenced within the applicable limitations period provided in chapter 95. See, §736.1008(1), §95.11(3)(o), and Patten v. Winderman, 965 So. 2d 1222 (Fla. 4th DCA 2007). In addition, a beneficiary can extend any existing applicable statute of repose by 30 years if he shows by clear and convincing evidence that a trustee actively concealed facts supporting a cause of action, i.e. fraudulent concealment. See,§736.1008(6)(b), F.S.