Trust Termination and Modifications:
Settlor’s Intent Apparently Still Matters

Horgan v. Cosden
(Fla. App. 2018)

In this case, the Florida Court of Appeals held that an irrevocable trust could not be terminated under the Florida Uniform Trust Code even where all the beneficiaries agreed to it, when the termination would violate a material purpose of the Settlor in creating the trust.

In this case, Yvonne Cosden (the Settlor) created a revocable trust that became irrevocable at her death in 2010. The trust was for the benefit of Yvonne’s only child, Christopher. Christopher and Joseph Horgan were co-trustees. The trust provided lifetime benefits to Christopher and upon his death, the remaining funds would be distributed to three institutions of higher learning. The trust contained a spendthrift clause.

In 2015, Christopher and the remainder beneficiaries entered into an agreement to terminate the trust and divide the funds on an actuarial basis. Horgan, as co-trustee, did not agree to this. Cosden sued Horgan to terminate the trust in accordance with the beneficiaries’ agreement. Horgan took the position that the Settlor’s purpose was to provide lifetime benefits to her son and to provide for principal distribution to the educational institutions at his death.

Relying on Florida’s Uniform Trust Code provisions regarding termination of an irrevocable trust after the Settlor’s death, the trial court granted summary judgment to Horgan. It was affirmed.

The court reminded us that “the Settlor’s intent is the polestar of trust interpretation.” Christopher argued that the agreement satisfied his mother’s purpose, which was to provide for her son and the three educational institutions. He also said the agreement preserved the trust funds by stopping unnecessary administration expenses and Trustee’s fees. The court pointed out the obvious: that the Settlor intended her son to be provided for with incremental distributions of income until he died and then give the remainder to the educational institutions. Terminating the trust sooner would frustrate that purpose. The Settlor anticipated there would be trustee fees, and the court said they were typical and not unreasonable, certainly with the contemplation of the Settlor. The court referred to the spendthrift clause as further evidence of intent to protect each beneficiary’s interest. The court found no circumstances existed which would justify terminating the trust — it was simply that the beneficiaries preferred a different result, namely, to get their money now. But this is not what the Settlor wanted. The Settlor’s preference prevailed.

It is interesting to note that since Christopher’s descendants (if he had any) were not potential beneficiaries, there truly were no other parties interested in whether or not this trust was terminated. No one’s ox was being gored, so one might have expected Horgan and the court to accommodate the beneficiaries. Apparently, the Settlor felt it unwise, for whatever reason, to give Christopher a large sum of money in a lump sum.

This case has implications for trust terminations and modifications in other situations. Minor and unborn children or other contingent remainder persons could possibly attack a termination or modification years after the fact on the basis that it violated a material purpose of the Settlor, and that they were not virtually represented by a party in the court proceedings who did not have a conflict of interest.

by R. David Marchetti

Copyright 2023 Wells, Marble, and Hurst, PLLC. All rights reserved.