A trust is a type of legal document that provides instructions for how to transfer certain kinds of property or assets from one person to another.
Trust documents are created by an individual known as the “trustor” or “settlor.” The settlor appoints another person called, a “trustee,” to hold the property or assets “in trust” for a specified period until it is time to distribute them to a third person or party (i.e., the “beneficiaries”).
Although there are many different types of trusts, including some that have their own separate requirements, almost all trusts can either be modified or terminated.
In general, trusts are typically modified by the settlor (i.e., the person who created the trust). There are other parties, however, who also may be able to modify a trust, including:
- Beneficiaries: In some jurisdictions, beneficiaries have the power to modify a trust document after it has been finalized. However, they must meet certain requirements such as:
- The modification must not frustrate the overall stated purpose of the trust; and
- All beneficiaries must consent to the modification being made;
- Trustees: Trustees do not usually have the power to modify or terminate a trust, unless it is specifically stated as much in the terms of the trust documents. If the trustee does have the power, but the settlor objects to what would normally be considered a lawful distribution of property or assets, then there may be evidence that the trustee’s actions are defeating the purpose of the trust; and
- Court–Ordered Modification: A judge has the power to modify a trust when the purpose of the trust has become illegal or impossible to perform, or if the purpose of the trust has already been completed. The judge will then modify the trust as much as possible until it reflects the original intentions of the settlor.
According to trust laws, trusts can either be revocable or irrevocable. A revocable trust may be modified or revoked at any time by the settlor. In contrast, an irrevocable trust may not be amended or revoked once it is formed, except under very limited circumstances.
While it is difficult to change an irrevocable trust, there are two main exceptions to this rule:
- The first requires the consent of both the grantor and all beneficiaries associated with the trust to agree to modify it. Depending on the laws of the state, this also may entail bringing an action in court to approve the desired modifications. This type of action may be brought by the settlor, trustee, or a beneficiary. A judge will then determine whether to issue a judicial modification; and
- The second primary way is through a process called, “decanting.” Decanting a trust simply means to take the property or assets from an already existing trust and move them into a new one. This method will also depend on the laws of the state and requires going to court to create a new trust.
To recap, the laws governing revocable and irrevocable trust modifications vary widely by state. As such, if you are thinking about modifying a trust, you should contact a lawyer for details regarding the trust laws that apply in your area.
In some situations, a trustee may be able to accept or reject the modifications made to a trust. This is because a trustee is considered to be a neutral party whose primary role is to manage the trust funds in a prudent manner.
A trustee may accept trust modifications through the following actions:
- By signing the modified trust document, or alternatively, by signing a separately written acceptance of the modification; or
- By knowingly performing duties or by exercising trustee powers according to the modified trust document (except where such actions would risk damage to the trust property or assets being held in trust).
Any terms included in the trust may be modified, so long as they conform to the principles discussed above. Trust modifications typically involve distributing property, naming trustees and beneficiaries, and listing trust assets.
If a dispute arises over any of the modified terms, a court may intervene to determine which terms may be modified. Although courts have full discretion to interpret the provisions of a trust, a judge will usually lean in favor of preserving the original purpose of the trust as stated in the trust documents.
If you want to make modifications to a trust or are involved in a dispute concerning trust modifications, it is a good idea to hire a lawyer in your area to oversee the process.
Trust modification procedures should be taken very seriously because they can significantly influence the outcome of how property and assets are distributed.
Regardless of whether you are the settlor, trustee, or a beneficiary, a local estate lawyer can help guide you through the trust modification process or dispute, in accordance with the laws of your state.