Let’s take a closer look at each of these situations to determine when an irrevocable trust can, and should, be modified or terminated:
- Tax legislation changes. Assume, for example, that deceased wife’s estate plan provides for creating an irrevocable trust share for the benefit of husband and children with the intent to exclude the assets passing into the trust share from her taxable estate. Today, the federal estate tax exemption has significantly increased, making this type of planning unnecessary for many individuals whose estates are well under the exemption amount. In this situation, it might make sense to attempt to modify the trust to leave assets to the surviving spouse outright.
- Life changes. Growing families, deaths, marriages, and divorces all impact asset distribution if careful planning is not in place. For example, assume James created an irrevocable trust for his grandchild. Now an adult, James’ grandchild suffers a disability and would benefit from government assistance, yet James’ trust disqualifies his adult grandchild from receiving that assistance. In this instance, it would be advantageous to decant the trust into a Special Needs Trust.
- Discovering errors. In some cases a minor error might occur when drafting a trust; this might have a relatively minor impact on the overall trust administration, such as an erroneous trust termination date that is a few months different than the settlor intended. In other instances, the error might be more egregious and detrimental to the settlors’ intent. For example, assume parents intend to create a trust to provide for all of their children and grandchildren. However, after the trust is created they might discover one of their children was mistakenly omitted from the trust document. Trust modification might be necessary in this circumstance to provide for the settlors’ intention.
It is important to note that judicial trust modification typically will require a court proceeding at which the court considers the circumstances and whether modification is in the best interest of the trust beneficiaries and consistent with the material purpose of the trust. Depending on whether the settlor is still living, modification may be possible without court approval if the settlor and all beneficiaries consent.
Are You Sure Your Trust is Still Working for You?
If you’re not sure an irrevocable trust is still a good fit or if you wonder whether you can receive more benefit from a trust, we’ll analyze the trust. Perhaps irrevocable trust modification or termination is a good option. Making that determination may simply require a conversation and a review of the document itself. Please call our office to schedule a consultation 919-493-6351 or complete an online consultation request.