An irrevocable trust is a special type of trust that the settlor cannot terminate once created. This is in contrast to a revocable trust, which the settlor can change, modify, alter, or cancel. Overall, trusts are a specific financial and legal instrument that permits a person to pass property to another in a collected, manageable way. The individual forming the trust is called the “settlor.” The settlor transfers property to another individual called the “trustee.”
The trustee is then accountable for preserving and keeping the property until it is eventually transferred to the end recipient, called the “beneficiary.” There are multiple kinds of trusts, each with different features and objectives.
How Are Irrevocable Trusts Formed?
Generally, all trusts are irrevocable (i.e., cannot be terminated) unless the trust agreement stipulates otherwise. If a person wants the trust to be revocable, state law typically instructs them to put the steps/requirements in the trust document.
However, in some states, revocable trusts are the default type of trust. In states where the revocable trust is the default trust, an irrevocable trust can also be formed by clear language in the trust agreement.
Therefore, a general rule to follow is: whether the settlor desires a trust to be revocable or irrevocable, they should state this expressly in the trust document or agreement. This will help create a record of the settlor’s intent concerning the revocability of the trust.
Can an Irrevocable Trust Ever Be Revoked?
States may have explicit laws and statutes dealing with the revocability of irrevocable trusts. The trust settlor cannot revoke a trust without the consent of all the beneficiaries or the people who benefit from the trust.
The exception is when the individual designating the trust is the sole beneficiary. In this type of case, the individual establishing the trust can revoke the trust without informing the trustee or the individual managing the trust.
A trust can also be revoked under specific occasions that the individual establishing the trust can confirm. For example, a trust might be revoked if, at the time of the trusts’ creation, the settlor was not mentally sound or entered the trust due to mistake, fraud, duress, or undue influence.
Can an Irrevocable Trust Be Changed or Modified?
The same regulations that apply to revocation of a trust apply to modification. If the settlor wants to be able to change or modify the trust in the future, they should make this clear in the trust document when it is first created.
In general, any change must protect the parties’ interests benefitting from the trust. In addition, many states have explicit laws and statutes expressly dealing with modifications. Largely, modifications may not go against the individual’s original intent to establish the trust.
Courts are given some discretion in interpreting modification. However, they are also bound to not stray from the individual’s original intent in establishing the trust unless doing so would be unattainable or illegal.
What Are Some Issues Connected with Irrevocable Trusts?
As with any trust arrangement, different legal disputes and issues can arise with the trust.
Lack of Agreement Between Beneficiaries
As mentioned, an irrevocable trust can sometimes be revoked, so long as all the beneficiaries agree to it. This can be difficult to achieve in many circumstances since any beneficiary will stand to gain something from the trust.
If the trust is revoked or revoked, they may lose their rights to the property or monetary assets completely. Thus, they might not consent to the revocation. Again, however, this depends on each case.
Disputes Over Distributions
As with any trust case, disputes may arise about how the property is distributed. For example, conflicts or disputes may arise regarding which particular beneficiaries are listed in the trust document.
This is typical in cases where there are already existing conflicts or disputes between beneficiaries (they may be fighting over “who gets what”).
Also, there may be disagreements regarding the exact property or financial funds listed in the trust documents.
Many trust arguments and conflicts result because the original document was vague or poorly written. Thus, it is essential to ensure that your trust document is straightforward and coherent if you wish to create a trust. In particular, any preference as to whether you want the will to be revocable or irrevocable should be stated very clearly and in detail.
What Is Revocation of a Trust Based on Consent?
As mentioned above, an irrevocable trust or a trust that does not include the authority to revoke in the trust instrument cannot be revoked by the settlor. But like most things in law, there are a couple of ways the courts can work around and cancel an otherwise irrevocable document.
The first alternative is revocation of the trust based on consent. It’s essential to comprehend the distinction between revocation and termination of a trust. Revocation is a kind of termination that results in the beneficiary no longer acquiring proceeds or property under the original trust.
In contrast, termination generally means dissolving the trust after the beneficiaries have received what is due in the original trust. These two terms could certainly be used interchangeably. Still, for the sake of this article, we are referring to a revocation that would lead to the beneficiaries not obtaining what they would have under the original trust.
Revocation based on consent requires the settlor to consent to revocation and all beneficiaries to be accounted for, not incapacitated or underage, and support the revocation. If the settlor has already died, the trust cannot be revoked.
What Is Revocation of a Trust Based On Mistake?
If getting consent to revoke a trust is not feasible, the settlor still can revoke a trust because the ability to revoke or some other language was omitted from the trust. The settlor was unaware of the language omission, or the omission was not due to any act or proposal by the settlor. Only the settlor can petition to revoke a trust based on a mistake.
Evidence must be presented to make a case for revocation based on a mistake. The guidelines for the type of evidence required to revoke a trust based on a mistake will vary depending on your state. Other than that, the evidence must be straightforward and persuasive to justify revocation. Proof cannot be vague or rest on the argument that the settler didn’t comprehend the trust document because it was written in legalese.
Proof indicating that the settlor was told that they would have the power to revoke the trust, such as parol evidence, will usually be tolerated by the court as a legitimate reason for revoking the trust based on a mistake. However, more than one person will generally need to confirm any parol evidence.
Do I Need a Trust Attorney for Help with an Irrevocable Trust?
Regardless of the type of trust, any trust instrument can involve various laws and legal issues. Seeking out a trust lawyer in your area would help navigate the complicated nuances associated with trust creation. Your attorney can provide you with legal advice and guidance if there are any additional issues. Use LegalMatch to find a trust attorney in your area today.