6.4 Trusts Creation, Modification, and Duties

The Florida Trust Code, codified in Florida Statutes Chapter 736, governs the creation, administration, and modification of trusts. A trust is a fiduciary relationship where a settlor transfers legal title to property (the trust res) to a trustee, who manages it for beneficiaries. Florida law distinguishes between revocable and irrevocable trusts, imposing strict default rules.

Requirements for Trust Creation

Under Florida Statutes Section 736.0402, a trust is created only if the following five elements are satisfied:

1. Capacity of the Settlor: The settlor must have the capacity to create a trust. The capacity required to create a revocable trust is the same capacity required to execute a valid will.
2. Intent: The settlor must manifest intent to create a trust (precatory words like "I hope" or "I wish" are insufficient; mandatory instructions are required).
3. Trust Property (Res): The trust must hold identifiable property. A trust cannot exist without assets.
4. Trustee with Duties: The trust must have a trustee with active duties to perform. However, a trust will not fail for lack of a trustee; if the designated trustee is unavailable, the court will appoint a successor.
5. Definite Beneficiary: The trust must have a definite beneficiary, or it must be a valid charitable trust, an honorary trust, or a trust for the care of an animal.

Execution Formalities for Testamentary Provisions

An oral trust of personal property can be valid, but a trust of real property must comply with the Statute of Frauds. Crucially, under Florida Statutes Section 736.0403(2)(b), testamentary aspects of a revocable trust (controlling post-death distributions) are invalid unless executed with will formalities—signed by the settlor and two witnesses in each other's presence.

Spendthrift Trusts and Exception Creditors

A spendthrift trust is a trust that contains a spendthrift provision, which restricts both the voluntary and involuntary transfer of a beneficiary's interest. Under Florida Statutes Section 736.0501, a spendthrift clause prevents a beneficiary from selling or assigning their future trust interest, and prevents the beneficiary's creditors from attaching or garnishing that interest.

However, a spendthrift clause does not protect the beneficiary's interest from all claims. Florida law recognizes specific "exception creditors" who can pierce a spendthrift clause and obtain a court order to reach trust distributions:

1. Child Support: Claims by a child, spouse, or former spouse for child support.
2. Alimony: Claims for spousal support or alimony.
3. Attorneys' Fees: Claims by an attorney who provided legal services to protect the beneficiary's interest in the trust.
4. Government Claims: Claims of the State of Florida or the United States government (such as IRS tax liens).

An exception creditor can only reach trust distributions when they are actually due or being made. The creditor cannot compel the trustee to make a discretionary distribution.

Modification, Revocation, and Termination of Trusts

By default in Florida, a trust created after July 1, 2007, is revocable unless the trust instrument expressly states it is irrevocable. A revocable trust can be modified or revoked by the settlor at any time.

Judicial Modification of Irrevocable Trusts

An irrevocable trust can be modified or terminated by a court under specific statutory grounds, even if the trust contains a spendthrift clause:

• Purpose Fulfilled or Impaired (Fla. Stat. § 736.04113): A court can modify or terminate a trust if the trust purposes have been fulfilled or have become illegal, impossible, or impracticable; if compliance would defeat or substantially impair a material purpose; or if a material purpose no longer exists.
• Best Interests of Beneficiaries (Fla. Stat. § 736.04115): A court can modify or terminate a trust if it is in the best interests of the beneficiaries. The court must conform the trust as nearly as possible to the settlor's intent.

Nonjudicial Modification (Fla. Stat. § 736.0412)

After the settlor's death, an irrevocable trust can be modified or terminated without court approval upon the unanimous agreement of the trustee and all qualified beneficiaries. However, this option is not available if a spendthrift clause is present or if the trust has a remaining material purpose, unless the settlor's estate consents.

Fiduciary Duties of the Trustee

A trustee is a fiduciary held to the highest standards of conduct. The Florida Trust Code imposes several core fiduciary duties:

Duty of Loyalty (Fla. Stat. § 736.0802)

The trustee must administer the trust solely in the interests of the beneficiaries. Self-dealing (transactions between the trustee in their personal capacity and the trust) is strictly prohibited. Florida applies the "no further inquiry" rule: if a transaction involves self-dealing, the court will not inquire into its fairness or whether it was made in good faith. It is a per se breach of duty.

Duty of Impartiality (Fla. Stat. § 736.0803)

The trustee must act impartially, balancing the competing interests of income beneficiaries (who receive current income) and remaindermen (who receive the principal upon trust termination).

Duty of Prudence and the UPIA

In managing investments, the trustee must comply with the Uniform Prudent Investor Act (UPIA) (Fla. Stat. § 518.11). Under the UPIA, the trustee's investment decisions are evaluated in the context of the entire trust portfolio as part of an overall investment strategy. The trustee has a duty to diversify trust investments unless it is prudent not to do so.

Duty to Inform and Account (Fla. Stat. § 736.0813)

The trustee must keep qualified beneficiaries reasonably informed. The trustee must provide a copy of the trust instrument upon request and deliver an annual trust accounting showing all receipts, disbursements, and asset balances.