The world changes, and so does our family, friends and charitable organizations. And we do too: We start to care more about relationships than money, health instead of inebriation, and sometimes come to an understanding with those people we disagree with. However, estate planning benefits do not always lend themselves to changed circumstances, so if you want creditor protection, government benefits, estate tax savings or the ability to control your family’s inheritance “from the grave” you usually need an irrevocable trust, I.e. one you cannot change even if you desperately need to change the documents.
When you create certain irrevocable trusts, you cannot modify them. These trusts are (typically) either the trustee or the beneficiary but never both; you may also be neither (meaning you just create the trust). Because you have divested yourself of a good deal of control the IRS may allow for estate tax savings when you create Grantor Retained Annuity / Unitrusts Trusts [“GRATs” and “GRUTs”} or Charitable Trusts. Want to qualify for Medicaid but have too much money? You will likely have to create a Medicaid-compliant Irrevocable Income Only Trust. Creditor issues also require you to leave your money to a trust company located in Nevada or Delaware or some other state with 7 people in it. So now your life or your beneficiaries change, and your legal documents are locked and loaded, and you are stuck with them.
Not so fast: An irrevocable trust may not actually be irrevocable.
- BENEFICIARIES AMEND THE TRUST: Sometimes beneficiaries may choose to revoke a trust or modify its terms or choose to distribute all funds even if the required timeframes have not been met. The good news is that any “unborn” beneficiaries do not need to consent (supposedly through some mystic power), but the bad news is that minor beneficiaries cannot give this consent (nor can their parental guardian) so even one minor can ruin this course of action. One alternative is to allow the Trustee to distribute funds when and to whom the Trustee believes is worthy, but state you prefer funds to be left in certain proportions to certain people. So, this method is preferred in happy families that all agree but will not work where there are family squabbles or even one beneficiary who is a minor.
- TRUSTEES AMEND THE TRUST: Several states have laws that allow a Trustee to “Decant’ a Trust, meaning they can change the terms of the trust if the creator of the Trust gives them certain powers and discretion in the trust. For example, a Trust stating “The Trustee shall distribute principal to all of my descendants” could be able to cut out a disfavored or drug addicted child but cannot stop income payment currently going to a second wife if she has a vested right. Decanting is preferable where you have confidence the Trustee will make the right decision for each beneficiary but can be disastrous if the Trustee and one of the beneficiaries have a hostile relationship.
- COURT AMENDS THE TRUST: In some cases, you can petition the Court to change the terms of your Trust. This may be necessary where the only named trustees have predeceased you or no longer want to serve. Or if you have a family member who is now disabled and will lose Medicaid benefits unless the Trustee is given the power to create a Supplemental Needs Trust in the document. This is a great approach but for the fact you will need a court date (and probably an attorney to create paperwork and represent you, or the Court could refuse to modify the Trust.
The most powerful way to change irrevocable trusts is to find trustworthy Trustees, maintain a good deal of discretionary power in the Trustee, and write out instructions inside and outside of the Trust stating what you want to take place. Where future plans are subject to change (and they often are) planning for the future during the drafting phase of your documents can pay off handsomely.
