Revocable trusts can be changed in certain cases.
Modification of the trust by the beneficiary or beneficiaries
Some irrevocable trusts are written with instructions for the trustee or beneficiaries that allow for modifications to the terms of the trust agreement, trust formation documents, under specific and limited circumstances.
Modification of the trust by a trust protector
Modern estate planning strategies include the use of a “trust protector,” an independent third party appointed by the trustee, beneficiaries, or the court. If the irrevocable trust document contains provisions allowing for the appointment of a trust protector, they can be engaged to examine the facts and circumstances surrounding the desired change to the trust. The trust protector will then make a final decision on whether the change should be made or not. If the trust protector recommends it, they will sign the relevant documents to effectuate the modification or seek court approval for the change.
Exercising the power of appointment
If the trustee or beneficiaries of the irrevocable trust have been granted “power of appointment” for life or after death, they can change the terms of the trust for the benefit of current or future beneficiaries. This simply requires signing a document exercising the power as specified in the trust document.
Disposition of trust property
Although the other provisions of the irrevocable trust may not change, selling or disposing of all property held in the trust can effectively terminate the trust. The trust will still exist, but it will serve no purpose and become an empty entity. For instance, if the irrevocable trust owns a life insurance policy on which the required premiums are not paid, the policy will eventually lapse, leaving the irrevocable trust empty.
What should you do?
Irrevocable trust agreements are generally not easy to read and understand. If you are the trustee or a beneficiary of an irrevocable trust that you wish to change, check the trust agreement for information specifying any laws governing the terms of the trust. This section can usually be found at the end of the trust agreement. It will be titled “Governing Law” or something similar. Then consult with an estate planning attorney who is knowledgeable about the trust laws in the governing state to determine whether anything can be done to change the provisions of your irrevocable trust. Laws can vary significantly from state to state.
Frequently Asked Questions
Are all trusts irrevocable?
There are four main forms of trusts: revocable trusts, irrevocable trusts, living trusts, and testamentary trusts. As the name suggests, a revocable trust is the opposite of an irrevocable trust. The person who creates and funds it can cancel it and “revoke” it at any time for any reason and can make changes to it without the consent or permission of anyone else. Both revocable trusts and irrevocable trusts are living trusts. A testamentary trust does not come into existence until after the death of the creator. It is formed by the executor of the probate estate according to directives contained in the deceased’s last will and testament.
Why would anyone form an irrevocable trust if it is difficult to change or revoke?
Irrevocable trusts offer many advantages that revocable trusts do not. Assets placed in an irrevocable trust can be protected from creditors, lawsuits, or judgments. They do not contribute to estate and gift taxes upon your death. This type of trust is a separate entity for income tax purposes as well. You do not need to claim it as income on your personal tax return. Both revocable and irrevocable trusts avoid the probate process upon your death.
Do
Does a revocable trust need to change to become irrevocable at any time?
A revocable trust automatically becomes irrevocable upon the death of the grantor – the person who created it and funded it with assets. The grantor is no longer available to make changes to the trust or revoke it, so it is now irrevocable. Typically, these trusts cease to operate after their assets are distributed to the beneficiaries named in the formation documents.
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Sources:
1. Superior Court of California, County of Santa Clara. “Can a Trust Be Canceled or Amended?”
2. Fidelity Charitable. “Charitable Remainder Trusts.”
3. Thompson Coburn. “Spinning Straw Into Gold: Modifying Irrevocable Trusts.”
4. Northern Trust. “Trust Protectors,” Pages 1-3.
5. Halliday Financial. “Trust Connection,” Page 1.
6. Karen S. Gerstner & Associates, P.C. “Basics – Irrevocable Life Insurance Trusts,” Page 6.
7. University of Wyoming. “What Everyone Should Know About Trusts,” Page 2.
8. HG.org Legal Resources. “Why an Irrevocable Trust Is Better Than Gifting.”
9. The New York Community Trust. “Revocable Trusts and Other Important Documents.”
Source: https://www.thebalancemoney.com/can-an-irrevocable-trust-be-changed-3505406
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