When dealing with irrevocable trusts the ability to effect change can be difficult to understand, presenting more questions than answers. The correct answers often depend on a variety of factors, but a good starting point is state law and the trust document itself.
When modification or termination of an irrevocable trust is sought, a possible mechanism is for the trustee or beneficiary to seek a court order.
When it comes to interpreting language in an irrevocable trust, appointing a trustee or providing directives to a trustee, a non-judicial settlement agreement may be an alternative to filing a court proceeding.
In some states, trustees, heirs, spouses and beneficiaries are among those permitted to enter into a binding non-judicial settlement agreement, so long as the terms do not violate a material purpose of the trust, the terms and conditions could otherwise be properly approved by the court, and any modifications sought are not already provided for in the trust.
Even if the trust is irrevocable, it may still be possible to carry out a change in who receives estate assets upon the death of the trust creator through exercising a power of appointment. A power of appointment is created when one person grants another the authority to dispose of property by designating a recipient of that property.
It is not unusual for the creator of a trust to have assigned the surviving spouse or trustee a power of appointment. If this power was granted, and the requested modifications of the trust involve disposing of property or changing a designated beneficiary, exercising a power of appointment could be a means to that end.
Some states also allow trust “decanting” as another means for modifying irrevocable trusts. A trust decanting involves a trustee’s exercise of discretion to distribute trust assets to another trust with dissimilar terms. The ability to decant irrevocable trusts depends on state law and varies from state to state.
For help with concerns involving irrevocable trusts, you should meet with an estate planning attorney to assist you with analyzing your trust instrument and to discuss the modifications being contemplated, the applicable law and the best course.
If you would like to discuss setting up your Estate Plan with an experienced attorney at Simmons & Schiavo, LLP, call (781) 397-1700 or visit our contact us webpage.