Creating an irrevocable trust takes considerable planning and thought. After all, these types of trust are known for their permanence and unchangeability.
But does that mean they can never be changed? It depends on the situation.
Why do people create irrevocable trusts?
An irrevocable trust requires the settlor to permanently relinquish ownership and all control of the assets transferred into the trust. This type of trust is often used to protect assets from creditors and lawsuits and to reduce tax liability. Unlike a revocable trust that allows the settlor to make changes or altogether cancel the trust, an irrevocable trust is intended to be final once it’s established.
However, life doesn’t always go as planned. Unforeseen circumstances arise, a person’s wishes change or the settlor may fall out with one of the beneficiaries. Recently, a media mogul wanted to change an irrevocable trust due to political differences. In that particular case, the judge denied the request.
Still, there are some situations where an irrevocable trust can be changed. Here are some of the ways it can happen:
- All of the beneficiaries of the trust agree to the change.
- If not all the beneficiaries agree to the change, but the settlor does and the change doesn’t significantly alter the interests of the beneficiaries that didn’t agree.
- It’s costing more to administer the trust than what it’s worth.
- It would weaken the trust or defeat its purpose.
The trust can also be decanted, a process where the assets of one trust can be distributed into one or more second trusts.
While not impossible, changing an irrevocable trust is extremely difficult. It’s vital to work with someone who understands the legal mechanisms involved. They can help with navigating the complexities and exploring different options.