A trust is a type of legal entity created when a person who sets up the trust, the trustor, places property in the possession and control of another person, the trustee, with the goal of providing some benefit to yet another person or entity, the beneficiary.
One type of trust is referred to as a “revocable trust,” which is a trust that the trustor is legally able to change or even revoke after it has been created. Another kind of trust is referred to as an “irrevocable trust,” which is one that the trust cannot change after it has been established. A trust must be irrevocable in order for certain tax advantages to be realized by the trustor.
The trust document is a legal document which creates the trust. In the trust document, the trustor appoints a person to serve as the trustee. The trustee is responsible for holding the trust assets in trust for a specified period until conditions specified in the trust document come to pass and the assets are distributed to the beneficiary or beneficiaries. The trust document should also specify what should happen to the assets while they are held in trust by the trustee. For example, if the assets generate income, what should be done with the income.
Although there are many different types of trusts, each type having its own special requirements, almost all trusts can either be modified or terminated, even if they are supposedly irrevocable.
Who Can Modify a Trust?
In general, trusts are modified by the trustor, unless, of course, the trust is irrevocable, in which case the trustor cannot change the trust.
For revocable trusts, the trust document can allow for changes to the trust. For example, a trust document may designate an independent person, referred to as a “trust protector,” as a person who can make certain changes to the trust. Or, the trust document may give the power of appointment to a beneficiary. This power of appointment would allow the beneficiary to direct that the trust assets should be distributed among a particular group of beneficiaries, e.g., the descendants of the trustor.
Some states have adopted statutes that increasingly allow some people, but not the trustor, to be able to change some of the provisions of the trust.
Some of the people who may also may be able to modify a trust include the following:
- Beneficiaries: In some states, beneficiaries have the right to modify a trust document after it has been finalized. However, the modification must meet certain requirements such as:
- The modification cannot frustrate the express general purpose of the trust; and
- All of the beneficiaries must consent to the proposed modification;
- Trustees: Trustees do not usually have the power to modify or terminate a trust unless it is specifically provided that they have that power in the trust documents. If the trustee does have the power, but the trustor objects to what would normally be considered a lawful distribution of property or assets, the trustor might appeal to the courts. The trustor would have to produce evidence that the trustee’s actions would defeat the purpose of the trust. Otherwise, a court is likely to allow the distribution;
- Court–Ordered Modification: A judge has the power to modify a trust when the purpose of the trust has become illegal or impossible to realize, or if the purpose of the trust has been completed. The judge will then modify the trust to the extent possible until it reflects the original intentions of the trustor.
What Is the Difference Between Modifying a Revocable versus an Irrevocable Trust?
According to trust law, trusts are either revocable or irrevocable. A revocable trust may be modified or revoked at any time by the trustor. An irrevocable trust, on the other hand, 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 the rule that it cannot be modified, as follows:
- The first exception requires both the trustor and all beneficiaries associated with the trust to consent to the modification of the trust. Depending on the laws of the state in which the trust is located, this also may entail bringing an action in court to approve the desired modification. This type of action may be brought by the trustor, the trustee, or a beneficiary. A judge then determines whether to issue a judicial modification; and
- The second way is through a process called, “decanting.” “Decanting” a trust means to take the property or assets from an existing trust and move them into a new one. This method will also depend on the laws of the state and may require going to court to create a new trust into which the assets can be decanted.
In some states, decanting is a process that a trustee can do on their own initiative, and decanting allows the trustee to change the terms of the trust, but only within certain limitations specified in the state statute that allows a trustee to effect decanting. And sometimes, decanting would allow a trustee to make certain changes to the beneficial interests, so it goes beyond just making changes to the administrative provisions of a trust document.
To summarize, the laws governing the modification of revocable and irrevocable trusts vary widely by state. So a person who is thinking about modifying a trust should contact a qualified trusts and estates lawyer for details regarding the law in the state in which the person lives.
Can a Trustee Accept Trust Modifications?
In certain situations, a trustee may have the power to accept or reject 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 and in accordance with their fiduciary duty.
A trustee may accept trust modifications by taking any of the following steps:
- Signing a modified trust document, or
- Signing a written acceptance of the modification; or
- Knowingly performing duties or exercising the powers of the trustee according to the modified trust document, except when such actions would risk damage to the trust property.
Which Trust Terms Can be Modified?
Theoretically, any of the terms included in a trust document may be modified as long as the modifications conform to the requirements of the law in the state in which the trust is located. Trust modifications most often involve distributing trust property, naming trustees and beneficiaries, and listing trust assets.
If a dispute arises over the modification of a trust, a court may intervene to determine which terms may be modified. Although courts have full discretion to interpret the provisions of a trust, they generally favor preserving the original purpose of the trust as stated in the original trust documents.
Do I Need a Lawyer for Help with Trust Modification?
If you want to make modifications to a trust or are involved in a dispute concerning trust modifications, it is a good idea to consult an experienced trust lawyer in your area to manage the process.
Trust modification procedures should be treated with caution because they can significantly influence the outcome of how property and assets are distributed.
Regardless of whether you are the trustor, trustee, or a beneficiary, a local trusts and estates lawyer can help guide you through the process of modifying a trust or help you handle a dispute, if one arises, in accordance with the laws of your state.