Sorry but I'm not sure what estate tax issues need to be unwound?
Such trusts are often used to shelter estate taxes. Now, a spouse can receive the money without an estate tax being involved because of an unlimited marital deduction. But, the kids cannot. However, there is an exemption amount which, I believe, for next year (and beyond) is $1 million which is passed tax free. So, such a trust like you are talking about uses that exemption amount to fund the trust for the kids. (Or, others.) Thus reducing the estate. A greatly simplified example using the $1 million (I will not be explaining the difference between unified credit and applicable credit amount or calculate the taxes here. Again, greatly simplified as I was tempted to use $1.5 million as my number.):
1.
-Dad has $3 million in assets.
-Dad dies creating a Credit Shelter Trust and funds it with $1 million. Kids are beneficiaries and get benefit of $1 million exemption so is estate tax free. Mom has use of income and, to a limited and ascertainable degree, the corpus.
-Mom inherits $2 million estate tax free due to the marital deduction.
-Mom dies and kids inherit $2 million. They get $1 million exemption.
-Estate taxes on $1 million.
2.
-Dad has $3 million in assets.
-Dad dies and Mom inherits $3 million estate tax free due to the marital deduction.
-Mom dies and kids inherit $3 million and they get $1 million exemption.
-Estate taxes on $2 million.
Now, this arraignment (#1) is often set up by what is known as a disclaimer trust. The amount is willed to the spouse who disclaims it and it flows to the credit shelter trust. However, this needs to be within 9 months of death. However the spouse cannot exert any control or gain any benefit over the money before disclaiming or the credit is blown. Now, that alone may not be a problem with what seems to be a ton of money in mom's hands. However, it might put the estate to be large enough to file appropriate estate tax returns to report the transactions. I would need to do research to see how you could unwind a purported credit shelter trust where the spouse exercised benefit and control and then, essentially disappeared the trust. At the very least, there should be some level of gift from the beneficiaries to the mom for the income and amended returns to all for the differing tax rates for the incorrect person reporting the income on their previous year's returns. Looking at the entire package of the estate would be required to determine the actual results. Also, the IRS may estopp you from changing the tax treatment as it seems mom may have greater income (and taxes) on the amount.
Termination is generally allowed if it can be shown to the court's satisfaction that that the continuance of the trust no longer serves the purpose for which it was intended. Beyond the reasons given in the Statute itself, here's an interesting one that may be applicable: If a bypass trust is used to ensure certain property will not be subjected to estate tax upon the death of the trust's primary bene, that purpose is no longer served if including the property in the bene's estate would not cause an estate tax to be due.
I tend to doubt that, but you may be right as I rarely read Florida cases. However, if it was created by disclaimer, that is problematical as conditions have changed? If created by direct funding, that is problematical as it really expresses the wishes of the grantor. Remember the title of the statute you are trying to use to terminate the trust.
As Co-trustees we obviously need to include each bene with their legal interest, but one legitimate concern is if no consent from, or consideration to, contingent residuary bene's is required, does offering that in any settlement agreement filed with the petition actually torpedo or increase the courts inclination to deny our petition for judicial modification as doing so no longer provides according to the settlor's original intent?
It is clearly to your benefit to get a release from all, including the contingent residual beneficiaries as it starts the statute running on any challenge to the plan or to a claim of a breach of your fiduciary duties. Since I've not seen an attempt at terminating the trust under facts like these, I have no idea if it helps or hurts to offer a settlement.