Trust Ambiguities and Protectors

Posted on December 24, 2014

Earlier this month, in what could turn out to be a staunch change in Florida Trust law, the Fourth District Court of Appeal of Florida (4th DCA) held in Minassian v. Rachins, 2014 WL 6775296 (Fla. 4th DCA 2014), any ambiguities in a trust agreement can be shifted from the courts to the trust’s “trust protector,” thereby privatizing the dispute-resolution and modification process from the courts, to private actors.  In the instant case, litigation ensued within a family trust between what unfortunately occurs too often, a dispute between a trustee, the settlor’s wife, and the beneficiaries, the settlor’s children.  In the midst of this, the trustee appointed a “trust protector,” allowed by the trust itself, to modify the trust’s provisions that were ambiguous.   Such modifications were unfavorable to the children because it would remove their standing to challenge any trust modifications made by the trust protector and therefore they filed a complaint to declare the trust protector’s modification invalid.  The 4th DCA reversed the trial court’s holding, and reasoned that the trust provisions were ambiguous, but the settlor allowed for the trust protector to act effectuating his own intent, and that the amendment which created two separate trusts after the death of the wife was valid.

The settlor, Zaven Minassian executed a trust in 1999, and a re-statement of trust in 2008 which created a revocable trust, becoming irrevocable upon his death.  The primary purpose of the trust created was to take care of himself and his wife, the trustee.  The trust provided that if the wife were to survive the husband, as the sole trustee, she should divide the trust property into two separate trusts:  the Marital Trust and the Family Trust.  However, if the federal estate tax was not in effect at the time of the husband’s death, the trust directed her to create only the Family Trust.  The parties agreed only the latter occurred, and only the Family Trust was created.  The trust would terminate at the death of the settlor’s wife, and directed the trustee to create a separate trust “share” for each beneficiary, the settlor’s children, after such death had occurred.

At the trial court level, the wife moved to dismiss the children’s complaint against her, arguing that they were not beneficiaries of the trust because the Family Trust would terminate upon her death, and instead, new trusts were to be created upon her death, of which the children would be the beneficiaries.  The children claimed that the trust provisions did not create a new trust, but alternatively created separate trust “shares” in the existing Family Trust for each child upon the wife’s death and therefore they did have standing to file a complaint against her.  After the trial court denied the wife’s motion to dismiss, she appointed a trust protector, who was empowered to modify or amend the trust provisions to “correct ambiguities that might otherwise require court construction . . . [or to] correct a drafting error that defeat[ed the settlor’s] intent, as determined by the Trust Protector in its sole and absolute discretion . . . .”

Consequently, the wife then filed an affidavit from her trust protector which stated that he had amended and corrected the ambiguities to the trust which purported to clarify that it was meant to create a new trust after the wife’s death, and grant the children shares in the new trust.  The trial court found that the trust protector’s amendment was improper because it did not benefit the beneficiaries as a group or further the settlor’s probate wishes because it would leave the children without the ability to challenge the actions of the wife as trustee, leaving her to do what she wishds without having to account to the children.

On appeal, the 4th DCA first validated the settlor’s ability to create a trust protector provision in Florida, which provided that said protector could exercise his powers in his discretion to bind all other persons, citing Florida Statute § 736.0808(3) (2008) in their decision.  The Court reasoned that the settlor is allowed to delegate his power to modify the trust to a third person for specific reasons, and therefore Florida Statutes do permit the appointment of a trust protector to modify terms of such trust.  In the instant case, because Article 11 of the Family Trust stated that it was not the intent of the settlor to create a common trust for his wife and other beneficiaries, but Article 12 then directed that upon the death of the wife, the trust assets shall be distributed into separate trust shares for the beneficiaries, the term “share” makes both provisions ambiguous.  It was unclear whether the term “share” referred to a new trust or not.

Therefore, the 4th DCA rejected the trial court’s single-trust interpretation and found that it was in fact patently ambiguous on the issue of whether a new trust was created where the language in the trust instrument dictated that the Family Trust terminated on the death of the wife.  Reinforcing the Court’s ruling, the trust protector testified that he met with the settlor twice, and discussed that his estate planning desires were to provide for the wife in the way they had lived in the past, and the plan was to create a separate Trust for the benefit of his children, which would be created only if the Family Trust described in Article 10 was not exhausted during the wife’s lifetime.  The Family Trust was not in any way associated to a new Trust that might be created for his children if there was property left over after the wife had passed.

Accordingly, because the trust agreement was ambiguous as to certain terms, and the trust protector’s amendments to the trust were made to effectuate the settlor’s intent, the amendments were within his powers even though they may have disadvantaged the children.  The trust protector was authorized to correct ambiguities and acted in a way to further the settlor’s probable wishes.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.

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