Trusts

Has Georgia Abolished Irrevocable Trusts?

The answer, like the answer to many legal questions, is maybe. Georgia has not outright abolished irrevocable trusts. However, O.C.G.A. § 53-12-61 authorizes judicial modification or termination of irrevocable trust under two circumstances.

During the Settlor’s Lifetime

Subsection (b) controls modifications or terminations during the settlor’s lifetime. Recall, a settlor is the same person as a grantor (grantor is a tax term used by the IRS). The settlor is the person who establlished the trust.

Subsection (b) provides: “the court shall approve a petition to modify or terminate an irrevocable trust, even if the modification or termination is inconsistent with a material purpose of the trust, if the settlor and all qualified beneficiaries consent to such modification or termination and the trustee has received notice of the proposed modification or termination.” In other words, as long as all provisions of the code are followed, judicial modification or termination of the trust is required. There is no requirement that the court determine whether the proposed modification or termination achieves a material purpose of the trust, presumably because the settlor joined the petition. There is no requirement that the settlor be competant, so long as someone with authority acts for the settlor. Subsection (b) specifically provides a settlor’s power to consent ma be exercised by (1) An agent under a power of attorney only to the extent expressly authorized by the power of attorney and the provisions of the trust; (2) The settlor’s conservator with the approval of the court supervising the conservatorship if an agent is not so authorized; or (3) The settlor’s guardian with the approval of the court supervising the guardianship if an agent is not so authorized and a conservator has not been appointed. The code does not allow beneficiaries to give consent by proxy, presumably because they were the persons the trust protected and a protected persons presumably continue to need protection.

Of note, if the settlor is deceased, subsection (h) requires that any order modifying the trust conform as nearly as practicable to the intention of the settlor. Further, modification includes the consolidation or division of a trust. Subsection (j). Modifications under subsections (b) and (c) do not apply to charitable trusts. See subsection (k).

In Terrorem Clauses

Subsection (l) expressly provides that [p]etitioning for or consenting to a modification or termination under this Code section shall not constitute a violation of a condition in terrorem under Code Section 53-12-22.

After the Settlor’s Death

Subsection (c) controls petitions for modification or termination after the settlor’s death and things are somewhat different. Like subsection (b), “the court shall approve a petition” if all procedural requirements are followed. Under subsection (c), all “qualified beneficiairies must consent, the trustee must receive notice and the court must conclude the morification or termination is not inconsistent with any material purpose of the trust. In Glass v. Faircloth, 354 Ga. App. 326 (2020), the Court considered whether a trust should be modified using a Petition filed under Subsection (c). Two consolidated casesd were considered. The first, Case no. A19A2190, does not relate to this issue sinec it concerned a petition for interlocutory injunction concerning trustee fees, and an adequate remedy existed at law. But the second case, A19A2393, is more interesting. There, the trustees appealed a trial court order granting a petition to modifiy the trust.

The Court stated:

“Pursuant to this language, the Beneficiaries petitioned the superior court in 2018 to amend the Trust, thereby allowing them to remove Faircloth and Sexton and appoint a corporate trustee. Following notice to the trustees and consent by all of the Beneficiaries, the superior court entered an order granting the petition. Faircloth and Sexton moved to vacate that order, and in a well-reasoned and thorough order, the superior court denied their motion, giving rise to this appeal.

As noted in the order denying the motion to vacate, the statutory language states that a court “shall” approve a petition if certain conditions are met. The record shows that the beneficiaries consented, and the trustees received notice. Accordingly, the controlling issue is whether the modification was inconsistent with any material purpose of the Trust.” (Emphasis added)

The Court rejected the trustees’ argument that removal of a trustee is controlled by O.C.G.A. § 53-12-221. Instead, the Court found the two Code sections operate in different ways. The modification/termination statute operates when concerns could arise that the settlor did not anticipate and can do nothing to resolve. The removal statute, on the other hand, operates at any time, allows initiation by “any interested person” and does not require consent of any of the beneficiaries. Thus, the Court affirmed the trial court’s Order modifying the trust to allow removal of the trustees.

Procedure/Commencement

Subsection (e) provides a proceeding to approve a proposed modification or termination under this Code section may be commenced by a trustee, trust director, or beneficiary. A proceeding to approve a proposed modification or termination under subsection (b) of this Code section may be commenced by a trustee, trust director, beneficiary, or settlor. In the case of an unfunded testamentary trust, a petition for modification or termination under this Code section may be filed by the personal representative of the settlor’s estate.

Notice

Notice must be given to the settlor, if living, the trustee, any trust director, all qualified beneficiaries, any holder of a power of appointment over the trust property, and such other persons as the court may direct. O.C.G.A. § 53-12-61(f)

Who are Qualified beneficiaries?

O.C.G.A. § 53-12-2(1) defines Qualified beneficiaries as a living individual or other existing person who, on the date of determination of beneficiary status:

(A) Is a distributee or permissible distributee of trust income or principal;

(B) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in subparagraph (A) of this paragraph terminated on that date without causing the trust to terminate; or

The Attorney General has the rights of a qualified beneficiary with respect to a charitable trust as defined in Code Section 53-12-170, and a person appointed to enforce a trust created for the care of an animal under Code Section 53-12-28 also has the rights of a qualified beneficiary.

If the Trust is terminated

Subsection (i) controls distributions if the trust is terminated, in part of whole. It provides: distribution of the trust property under an order for termination shall be made to or among the current beneficiaries and the vested remainder beneficiaries, or, if there are no vested remainder beneficiaries, among the current beneficiaries and the contingent remainder beneficiaries. The order shall specify the appropriate share, if any, of each current and remainder beneficiary who is to share in the proceeds of the trust so as to conform as nearly as practicable to the intention of the settlor. The order may direct that the interest of a minor beneficiary, or any portion thereof, be converted into qualifying property and distributed to a custodian pursuant to Article 5 of Chapter 5 of Title 44, “The Georgia Transfers to Minors Act.

Trustee Assent/Notice

Subsection (m) requires notice to the Trustee unless the Trustee assents to the modification or termination. Specifically, it provides:

(1)

(A) Unless the trustee:

(i) Expressly waives notice in a writing signed by the trustee, notice to the trustee under subsection (b) or (c) of this Code section shall be given by delivery of a copy of the petition by certified or registered mail or statutory overnight delivery with return receipt requested and with delivery restricted to addressee only at least 31 days before the entry of an order granting the petition; and

(ii) Expressly waives notice and assents to the petition in a writing signed by the trustee, the trustee shall have standing to intervene as a matter of right pursuant to paragraph (1) of subsection (a) and subsection (c) of Code Section 9-11-24 and to file a caveat or objection to the petition showing that one or more of the applicable requirements of subsection (b) or (c) of this Code section has or have not been satisfied, provided that the trustee must file any such pleadings provided by this division not more than 30 days following the express written waiver of notice by the trustee or delivery of notice to the trustee as provided in division (i) of this subparagraph or by such later date as the court may direct pursuant to subparagraph (B) of paragraph (2) of this subsection.

(B) Unless a person to be given notice under subsection (f) of this Code section:

(i) Expressly waives notice in a writing signed by such person, such notice shall be given by delivery of a copy of the petition by certified or registered mail or statutory overnight delivery with return receipt requested at least 31 days before the entry of an order granting the petition;

(ii) Expressly waives notice and assents to the petition in a writing signed by such person, such person shall have standing to intervene as a matter of right pursuant to paragraph (1) of subsection (a) and subsection (c) of Code Section 9-11-24 and to file a caveat or objection to the petition showing that one or more of the applicable requirements of subsection (d) of this Code section has or have not been satisfied, provided that such person must file any such pleadings provided by this division not more than 30 days following the express written waiver of notice by such person or delivery of notice to such person as provided in division (i) of this subparagraph or by such later date as the court may direct pursuant to subparagraph (B) of paragraph (2) of this subsection, and further provided that such person is the settlor, the trustee, a trust director, a qualified beneficiary, or the holder of a power of appointment over the trust property; and

(iii) Expressly waives notice and assents to the petition in a writing signed by such person, such person may file a motion for permissive intervention pursuant to paragraph (1) of subsection (b) and subsection (c) of Code Section 9-11-24 and a caveat or objection to the petition showing that one or more of the applicable requirements of subsection (d) of this Code section has or have not been satisfied, provided that such person must file any such pleadings provided by this division not more than 30 days following the express written waiver of notice by such person or delivery of notice to such person as provided in division (i) of this subparagraph or by such later date as the court may direct pursuant to subparagraph (B) of paragraph (2) of this subsection, and further provided that the court shall deny such motion for permissive intervention and dismiss such caveat or objection unless such person satisfactorily demonstrates to the court that he or she is a person whose interests would be affected directly and adversely by the grant of the petition.

(2)

(A) The petitioner shall certify to the court that notice has been waived or given in compliance with paragraph (1) of this subsection in a writing signed by the petitioner or by counsel for the petitioner and filed with the clerk to which all applicable executed waivers and return receipts are attached as exhibits.

(B) The court may direct any additional notice or extend the time to respond to a petition under this Code section as the judge may determine to be proper in the interests of due process and reasonable opportunity for any affected person or interest to be heard.

Hearings

Subsection (n) provides: [t]he court may, in its sound discretion, conduct a hearing on a petition under this Code section, but such hearing shall not be required if no caveat or objection is timely filed by a person having standing under division (m)(1)(A)(ii) or (m)(1)(B)(ii) of this Code section or by a person granted permission to intervene by the court pursuant to division (m)(1)(B)(iii) of this Code section.

Court Action

Subsection (d) governs the Court’s action on the Petition. The permissive nature of Subsection (d) does not appear to apply when the Settlor is living, so it appears to apply, primarily to Petitioners filed after the Settlor is deceased. Subsection (d) provides:

The court may, upon petition:

(1) Modify the trust if, owing to circumstances not anticipated by the settlor, modification would further the purposes of such trust;

(2) Modify the administrative provisions of a trust if continuation of such trust under its existing provisions would impair such trust’s administration;

(3) Modify the trust by the appointment of an additional trustee or special fiduciary if such appointment is necessary or helpful to the administration of such trust;

(4) Modify the trust to achieve the settlor’s tax objectives, with such modification to have either prospective or retroactive effect;

(5) Order the division of a single trust into two or more trusts or the consolidation of two or more trusts, whether created by the same or different trust instruments or by the same or different persons, into a single trust if the division or consolidation would be helpful to the administration of such trust or trusts; or

(6) Terminate a trust and order distribution of the trust property if the:

(A) Costs of administration are such that the continuance of such trust, the establishment of such trust if it is to be established, or the distribution from a probate estate would defeat or substantially impair the purposes of such trust;

(B) Purpose of such trust has been fulfilled or become illegal or impossible to fulfill; or

Commentary

If the Settlor is living and both the Settlor and all Qualified Beneficiaries agree, then any trust, even irrevocable spendthrift trusts, may be modified or terminated provided the conditions in Subsection (b) are met. This should not impact special needs trusts since the beneficiary cannot unilaterally terminate the trust, …. unless the beneficiary is also the Settlor. It is unknown at this time whether SSI or Medicaid would take the position that Section 53-12-61 rendered a self-settled trust where the beneficiary is Settlor revocable and therefore countable. Since Subsection (c) requires the court to conform as nearly as practicable to the intention of the settlor, it should have no impact on third-party trusts (a/k/a Supplemental Needs Trusts) and should not impact d4A trusts where the beneficiary is not the Settlor.

From an asset protection standpoint, Section 53-12-61 potentially makes any trust vulnerable if the beneficiary is the Settlor (at least up to the beneficiary’s interest), but should have no impact if the Settlor was someone other than the beneficiary.