Changing an Irrevocable Trust

Once a trust becomes irrevocable, either because it was originally created that way or because an event has occurred, such as the death of the grantor, that causes the trust to be irrevocable, we are pretty much stuck with that trust as it is, right? I mean, irrevocable means irrevocable, doesn’t it? Not necessarily.

Trusts that are irrevocable can sometimes be changed and such a change is called a modification. This can be done under certain limited circumstances.

1. Trust terms can permit modification. With some irrevocable trusts, we know they may have to last a long time and that the laws that affect them are constantly changing. This is often true of special needs trusts. In these cases we might include a provision in the trust document that allows someone designated the Trust Protector to modify the trust by following specified procedures but without having to go to court.
2. Grantor and all beneficiaries consent to modification. California law permits the modification of an irrevocable trust if the grantor, meaning the person who created the trust, and all of the beneficiaries consent to the modification. This approach does not work if one of the grantors has died, nor does it work if any of the beneficiaries is a minor. Minors cannot legally give consent.
3. Modification by petition to court. Under certain circumstances a court can order an irrevocable trust to be modified. For example, if circumstances have changed significantly in the time between when the trust was first established and today, such that the trust can no longer achieve the intention of the grantor, a judge may agree to modify the trust to make its terms more appropriate for today’s changed circumstances.

We use the argument frequently in cases where the grantors established a revocable living trust many years ago that no longer serves their intended purpose and one of the spouses passed away before they had a chance to make an amendment. Many couples established trusts that were designed to divide into two trusts when one of them died. The purpose of that design was to minimize estate taxes. Now, however, with the exemption from federal estate tax at $11,180,000, very few people need this complicated structure to minimize estate taxes.

Irrevocable does not always mean nothing can ever be changed. There are often avenues available to modify a trust that doesn’t seem to work anymore, but it’s important to follow the correct procedure.

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