There are a number of reasons people create irrevocable trusts, including the desire to remove wealth or property from their estate for tax planning purposes or to protect assets. As the name suggests, irrevocable trusts cannot be revoked. But can they be modified?
As a general rule, it’s difficult to modify an irrevocable trust. But there are some limited circumstances under which irrevocable trusts can be modified.
When—and How—Can an Irrevocable Trust Be Modified?
Irrevocable trusts can be modified if the maker of the trust (also known as the trustmaker or grantor) and all possible beneficiaries (not including unborn beneficiaries) agree in writing to the modification. Commonly sought modifications include a change of trustee or changing the terms of distribution of income.
Once the trustmaker is deceased, modification by consent is no longer possible, so beneficiaries of a trust may have to petition a court for modification of an irrevocable trust. The court must also be asked to modify an irrevocable trust if the trustmaker is alive but does not consent to the change, or if one of the beneficiaries does not or cannot consent.
If, while making an irrevocable trust, a grantor suspects that there might be a need in the future to modify it, he or she can also put in place mechanisms to make that future modification easier.
One such mechanism is to create within the trust document a “power of appointment.” A power of appointment is a legal right created under the terms of a legal document such as an irrevocable trust. It allows the holder to change the provisions of the trust, so long as this is being done for the benefit of current or future beneficiaries. Washington law imposes certain restrictions on the exercise of powers of appointment, particularly if the holder is exercising it for his or her own benefit.
Another way to address the need for modification in an irrevocable trust is to include in the trust document a provision for a “trust protector.” A trust protector is an independent third party who is neither a grantor, trustee, or beneficiary of the trust. A trust protector may be appointed by the court or by the trustee or beneficiaries. If there is a proposed modification to the trust, the trust protector can review and evaluate it, and, if it appears beneficial, make the change or ask the court to do so.
Planning Ahead to Minimize the Need to Modify
While modifications to an irrevocable trust are possible, they can also be difficult, time-consuming, and cumbersome to bring about. This is especially true if there are a large number of beneficiaries or if they are far-flung.
A better course of action is to discuss the goals and concerns regarding a planned irrevocable trust with an experienced Washington estate planning and tax attorney. It’s important to consider possible contingencies and how they should be responded to. An experienced attorney will be able to ask the right questions of a trustmaker to discern the terms and provisions that should be included in a particular trust.
The estate planning attorneys of Ortiz & Gosalia, PLLC have post-JD degrees in tax law and can help you to anticipate the needs of your irrevocable trust and intended beneficiaries. With offices in Redmond, Bellevue and Kirkland, we offer services throughout the Seattle area and Washington State. If you would like to learn more about drafting and modification of irrevocable trusts, we invite you to contact us.