Is an irrevocable trust actually irrevocable? Most of the time, estate planning rules mean exactly what they say. So, for example, if the law says a trust is irrevocable, it means it’s irrevocable.
But not always.
In estate planning, irrevocable doesn’t always mean irrevocable.
And that’s a good thing.
Because if there is one thing that you can absolutely count on in life—aside from death and taxes—it is change. Nothing stays the same. Life is constantly changing.
Luckily, the estate and probate law recognizes this.
As a result, even some seemingly inflexible estate planning rules—like those that make irrevocable trusts irrevocable—have a little flexibility in them to allow for unexpected changes.
So, irrevocable doesn’t always mean irrevocable.
Although not easy to do, there are some ways to change the terms of an irrevocable trust.
What Makes a Trust Irrevocable?
There are generally 2 kinds of trusts:
- Revocable, and
A revocable trust, often referred to as a “revocable living trust,” is a trust that can be modified, changed, or revoked by the settlor or trustmaker (person making the trust) at any time during his/her lifetime. The terms of the trust itself allow for the modification of the trust.
An irrevocable trust, on the other hand, is one in which the trust terms specifically state that the trust cannot be changed, amended, modified, or revoked. This means that the settlor or trust maker cannot:
- take back the property transferred to the trust
- add or remove beneficiaries
- change the terms or provisions of the trust
There are many reasons to have an irrevocable trust, but chief among them is the fact that because the assets in an irrevocable trust are not considered to be part of the settlor’s estate, they cannot be taxed or used to satisfy his/her debts.
Why Would You Want to Modify an Irrevocable Trust?
So if an irrevocable trust can provide tax and other advantages, why would you want to change its terms?
Again, there are any number of reasons, but some of the more common include:
- changes in circumstances that arise long after the trust is created,
- changes in tax laws, and
- changes in family situations.
While good estate planning attempts to foresee all potential situations that may arise, it is not always possible to anticipate life’s changes.
Luckily, the law allows an irrevocable trust to be modified or changed in limited circumstances.
Here are 2 Ways to Change an Irrevocable Trust
One way Florida law allows for an irrevocable trust to be modified is by a procedure called “decanting.”
Decanting is simply (*Note: we say “simply” but do not take that to mean that this is an easy process or one you should attempt to do without legal advice and guidance) taking the assets from the old trust (the one to be modified), creating a new trust, and “pouring” the assets into the new trust.
In an image we can get behind, you can think of decanting like decanting wine. You move the wine from one decanter to another, leaving the (“wine”) trust corpus the same, but moving it to a new trust (“decanter”) with different terms.
As long as decanting is done properly and within the limits of Florida’s statutes, it is something that the trustee can do without the need for court intervention, because it is seen as an extension of his/her powers to distribute the assets.
Another approach that can be taken to modify the terms or revoke an irrevocable trust is by petitioning the court.
In deciding whether (and how) to modify an irrevocable trust, the court will consider, among other things, the terms and purpose of the trust. It will also look at the facts of the situation surrounding the creation of the trust and the need for modification and/or termination.
Irrevocable trusts are made irrevocable for a reason. And yet, there may be times when you need to change the terms of an irrevocable trust. While as noted above, this can be done in several ways (there are others as well), keep in mind that when modifying or revoking a trust instrument, there may be unintended tax consequences. So it’s wise to consult with your estate and probate lawyer first.
Plantation, Florida Estate Planning Lawyers Near You
At SJF Law Group, we work hard to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. When you work with the estate planning attorneys at SJF Law Group, you get more than just an estate plan: you get peace of mind. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Contact us here or email us at: [email protected].