The term “irrevocable” means not able to be changed. Therefore, by definition, an irrevocable trust is one that cannot be modified, changed or revoked. Once you create an irrevocable trust, the terms are considered written in stone and, regardless of the reason, its terms cannot be altered in the future. So, what makes a trust irrevocable is the inability to change its terms.
Types of Irrevocable Trusts
There are basically two types of irrevocable trusts: living trusts and testamentary trusts. Each of these types of trusts serves a different purpose. However, many irrevocable trusts are drafted to include terms that specifically allow for modification under very specific and limited circumstances. On common example of this is a charitable trusts. Charitable trusts usually contain provisions to allow modification in order to comply with changes in federal law regarding charities.
What is an irrevocable trust?
An irrevocable living trust, also called an “inter vivos irrevocable trust,” is established and funded by an individual who is still living at the time – hence the term “living trust.” Some common examples of irrevocable living trusts are:
- Irrevocable Life Insurance Trusts
- Qualified Personal Residence Trusts
- Grantor Retained Annuity Trusts
- Spousal Lifetime Access Trusts
- Charitable Remainder Trusts
What is a testamentary trust?
Unlike the living trust, a testamentary trust is created and funded after the individual’s death. In that case, there is no one still living who has any legal authority to change the terms of the trust. As a result, essentially all testamentary trusts are irrevocable.
Can an irrevocable trust ever be modified?
Because an irrevocable trust is designed precisely for the purpose of preventing changes or modifications, the basic rule is that no changes can be made once an irrevocable trust has been created. However, there are a few alternatives to consider if you have a major issue with the terms.
Judicial modification requires the trustee or trust beneficiaries to ask the court to either modify the terms of the trust or terminate the trust entirely through a court proceeding. Judicial modification is always an option when the circumstances have changed in a way that the administration of the trust has become far too expensive.
Trust Protector Modification
In many cases, an estate plan will include a provision for the use of a “Trust Protector.” A trust protector is an independent third party who appointed by the trustee, the trust beneficiaries, or a court. The trust protector has the authority to examine the facts and circumstances surrounding any requested modification to the irrevocable trust agreement, and decide whether or not to make the changes.
Power of Appointment
Some trusts also include a provision giving the trustees or beneficiaries a lifetime or testamentary “power of appointment.” This provision allows the terms of the trust agreement to be changed, for the benefit of the beneficiaries, upon exercise of the power.
Termination of an irrevocable trust
When all of the property placed in the irrevocable trust is sold or otherwise disposed of, then the trust can be terminated. For instance, when an irrevocable trust owns a life insurance policy, and the premiums are no longer being paid, the policy will lapse and the irrevocable trust will no longer hold assets. Although, technically, the terms of the trust have not changed, the trust itself is no longer valid.
If you have questions regarding irrevocable trusts, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.