Your estate plan probably has a trust and, if it does, you may be wondering whether you can modify it. If it is a revocable trust, the answer is yes. For nearly everyone who includes revocable trusts in their plan, the time will eventually come when you need to make changes. This is especially true when certain aspects of your life change like your finances or new beneficiaries. In fact, it is likely that the need to make modifications will arise more than once during your life.
Methods for making modifications to your trust
A revocable trust can be very beneficial, particularly because of its flexibility. In fact, not only can you modify revocable trusts, but there are several ways to do it. Obviously, you can revoke the trust, which means to cancel it and start over from scratch. But, that is a drastic measure and certainly not the only one available. You can also create an amendment or simply restate the terms.
Determining whether to amend or revoke your trust
Regardless of which method you choose, revocation or amendment, the result will ultimately be the same. Yet, there are some cases where an amendment may be the easiest way to go. For instance, if you get married or have a new child, amending your trust to include those new beneficiaries would be quite simple.
If your revisions are complicated though, revoking the trust and starting over could be a better choice. Revocation would give you a way to ensure the new terms are clear and accurate. Just remember that revoking a trust is more complicated than amending. The primary reason for that is the trust property has already been transferred to the trust and would need to be transferred again with each revocation.
A restatement might be a better option
Although an amendment might be an easy solution, if you accumulate several amendments over time, then the terms of the trust might become rather confusing. In that situation, creating a restatement of the terms might be a better choice. You can restate your trust terms without revoking the trust altogether, which allows you to keep the original creation date of the trust. It also eliminates the need to transfer the trust property to the trust a second or third time. Instead, you only need to state that it is a restatement of the original trust, indicate that the original terms remain in force with the exception of specific terms that are being added.
When is complete revocation or termination of a trust necessary?
Generally speaking, a trust will terminate when the trust property has been exhausted. For instance, trusts that include stocks and bonds or cash, the trust will automatically terminate when all of those funds have been paid to the intended beneficiaries. If the trust includes tangible property, like cars or houses, then the trust would be terminated if the property is destroyed.
In some cases, when the value of the trust falls below a minimum amount, provisions of the trust allow the trustee make the determination that continuing the trust would defeat or substantially impair the accomplishment of the goals of the trust. In that case, the trust can be terminated.
A trust may terminate based on specific provisions
Some trusts actually include an ending date. Revocable trusts can also contain provisions that call for the termination of the trust when certain conditions are met. The most common example of this is when a trust is created for a beneficiary who is a minor and states that the trust will terminate when the child turns 21 or graduates from college. At that point, the conditions of the trust have been met and the assets are transferred to the beneficiary. The trust will automatically end at that point.
What happens after the trust terminates?
When a trust ends for whatever reason, and there is property remaining in the trust, the beneficiary and trustee can often work together to agree on the best way to distribute the remaining property. That is, of course, unless the trust agreement has specific provisions regarding how to proceed in that situation. In fact, some trusts include instructions to donate any remaining assets to a charity or to distribute them to a residual beneficiary.
Download this FREE estate planning worksheet! If you have questions regarding revocable trusts, or any other estate planning needs, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.
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