A comprehensive estate plan is essential to ensure your assets are distributed according to your wishes after your passing. For many, a key element of this plan is establishing a trust. Several types of trusts exist, including an irrevocable trust. Please continue reading as we explore whether you can change the terms of an irrevocable trust and how a determined Washtenaw County Trusts Attorney can assist you.
What is an Irrevocable Trust?
First and foremost, it’s crucial to understand that an irrevocable trust is a legal arrangement in which the individual who creates it (grantor) transfers their hard-earned assets into the trust fund and relinquishes the power to revoke or change the trust’s terms. This type of trust is often utilized for estate planning, shielding assets, and gaining tax advantages. It should be noted that an irrevocable trust differs from a revocable trust in that the grantor retains the right to modify or terminate the trust at any time.
While an irrevocable trust is designed to be unchangeable by the grantor, there are limited circumstances in which modifications can be made, typically with the consent of beneficiaries or through court approval. Essentially, there is limited flexibility in addressing changes in circumstances.
What Methods of Modification Should I Consider?
Understandably, there may come a time when your circumstances drastically change, leading you to consider modifying the terms of your irrevocable trust. These matters may include family changes, shifts in asset value, changes in personal relationships, the emergence of new charitable interests, evolving tax laws, distribution needs, and more.
If you wish to modify an irrevocable trust, you should consider decanting. This process enables a trustee to transfer trust assets to a new trust with modified conditions. The trustee can usually be appointed without the consent of beneficiaries or court approval, as long as the original trust document permits discretionary distributions and doesn’t explicitly prohibit decanting. Although consent may not be needed, the trustee is responsible for providing notice to the beneficiaries regarding the decanting process.
Another option is a nonjudicial settlement agreement. Interested parties can agree to amend certain provisions in the trust agreement. These agreements are frequently employed for administrative modifications, clarifying ambiguous language, or adjusting distribution terms. For an agreement to be valid, it must not violate the trust’s fundamental purpose. When there are substantial changes, judicial approval might be required.
If all parties involved don’t agree or if the changes are complex, you may need to obtain a court order. Irrevocable trusts are intended to be difficult to alter, and court intervention is necessary when there is a lack of unanimous consent. Keep in mind that court modification can be a costly and time-consuming endeavor. Judges can approve modifications if the trust’s objective is obstructed, its management is unfeasible, or a legal dispute arises.
For more information, please don’t hesitate to contact an attorney at Collis, Griffor, & Hendra.