Can an Irrevocable Trust Be Changed? A Comprehensive Guide

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Can an irrevocable trust be changed? Find out in this comprehensive guide from an experienced estate planning attorney.

Author: Paul Black

Paul’s experience as the son of two parents with big health challenges is what led him to the work he does today and gives him first-hand knowledge of the challenges that many caregivers and family members face. After graduation from GSU Law, Paul was chosen from dozens of applicants nationwide as one of three 2010-2011 Borchard Foundation Law & Aging Fellows. Paul has been named as  a SuperLawyers “Rising Star” in the area of Estate Planning and as a member of Georgia’s “Legal Elite” by Georgia Trend magazine. Published on: October 03, 2021. Last updated on: November 01, 2021.

Can an Irrevocable Trust Be Changed?

Can an Irrevocable Trust Be Changed section

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A trust is a fiduciary arrangement where one party or a trustor allows another party or a trustee to hold assets or property for the beneficiary’s benefit. The trustor or the grantor is the party who creates the trust, while the trustee has the authority to manage the trust’s assets and the property held in trust.

The trust’s purpose is to provide asset protection, avoid probate, save time and court fees, and potentially reduce estate tax. When using a trust, trust beneficiaries can gain access to trust assets more quickly.

Trusts can be revocable and irrevocable. Revocable trusts can be revoked or amended by the trustor. On the other hand, with irrevocable trusts, the usual belief is that they cannot be amended or revoked after being created. However, that is not entirely true – there is a way to amend even irrevocable trusts.

 

Can an Irrevocable Trust Be Amended?

It is essential to understand the difference between revocable and irrevocable trusts. For example, if you put assets in a trust, but you remain in control by being both the trustee and the grantor, you have created a revocable trust.

Revocable trusts are subject to any lawsuits and estate tax because the grantor can revoke and amend the terms of the trust at any time. Property held in a revocable trust is considered your personal assets, and it may count against you if you file for Medicaid. However, when you create an irrevocable trust, income earned by the trust is not taxable, and creditors can’t access trust funds.

When the grantor creates an irrevocable trust, he or she can’t act as a trustee, and they relinquish the authority to manage trust funds. But, they can appoint a trustee who will be able to manage the trust property. The grantor, however, loses the ability to manage the trust assets.

An irrevocable trust has become a lot more flexible in the state of Georgia since 2018 when a set of laws amended the GA Trust Code in a way that would be beneficial to anyone with an irrevocable trust in this state.

If you would like to amend it, you could benefit from a consultation with an experienced estate planning attorney like Paul Black of The Law Office of Paul Black. He is the estate planning attorney who can help you navigate the various irrevocable trust amendment mechanisms.

How Can an Irrevocable Trust Be Changed?

There are several types of irrevocable trusts. For example, an irrevocable life insurance trust is designed to exclude a life insurance policy from the deceased’s taxable estate while providing liquidity to the trust, the trusts’ beneficiaries, and the estate.

With a charitable trust, the grantor’s assets will be transferred to charity at the time of their death. A special needs trust provides for a disabled family member if they are in jeopardy of losing government benefits because of the inheritance at the time of the grantor’s death.

 

How to Change an Irrevocable Trust

If you think you have a good reason for changing an irrevocable trust, you must seek court approval. There are several circumstances under which the judge will approve a change or termination of an irrevocable trust. These circumstances include:

  • Significantly changed circumstances
  • The trustor made a mistake when creating a trust
  • Complying with the changes of the state law
  • All the beneficiaries agree a trust should be changed

If these or other circumstances apply, a court may order judicial modification of a trust.

An estate plan can also allow an independent party to be appointed who will have the power to make specific changes to the trust. That person is called a trust protector, and their job is to review the proposed modification to the trust and decide about them.

Is an Irrevocable Trust the Right Move for You?

Is an Irrevocable Trust the Right Move for You

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If you are trying to prevent misuse of your assets and property, qualify for certain benefits, reduce the tax burden of your beneficiary or beneficiaries and protect your assets or real estate from creditors and lawsuits, then the irrevocable trust is the right move for you.  

The downsides are that an irrevocable trust can not be changed easily, so it’s vital to be certain you know what you are doing. It’s best to place assets in this type of trust if you want to ensure your beneficiary will have them under the terms of the trust.

 

Is It Possible to Modify an Irrevocable Living Trust?

In addition to the ways described above, there is also an alternative to amending a trust called “trust decanting.” Trust decanting is a method of modifying a trust agreement. If the trust authorizes the trustee to distribute assets of the trust at their discretion, then the trustee can remove assets from one trust to another with more favorable terms. 

However, in the case of trust decanting, certain rules have to be followed, including that the new changes have to be in the best interests of all the beneficiaries. In addition that the existing trust holding the assets has to be created as an irrevocable trust, the trustee may not be among the trust’s beneficiaries. Also, the trustee must have the power to make discretionary distributions of trust assets for the benefit of other beneficiaries. 

Who Can Make Changes to a Trust?

Under Georgia law, a petition for trust modification may be filed by the trustee or any qualified beneficiary or, in some cases, the personal representative of the estate.

If the grantor is deceased or doesn’t consent to the proposed modifications, or if one or more beneficiaries also don’t agree, the parties proposing trust modifications must seek court approval. 

 

When Does an Irrevocable Trust End?

 

It’s technically possible to terminate an irrevocable trust in a way. You can do that by removing all assets from the trust. Removing all assets and property out of the trust and emptying it will not end the trust, but you will have a trust with no assets. 

There is another way – if you have a trust with a life insurance policy, and you stop paying premiums. In that case, the policy will lapse, and the trust will be empty. 

 

When Does a Revocable Trust Become Irrevocable?

There are several situations that can make a revocable trust irrevocable, but the most common include the death of the grantor and his or her incapacitation. 

Typically, the person who created the trust is the trustor, the trustee, and the initial beneficiary. So, when he or she dies, the revocable trust becomes irrevocable. 

In cases when the grantor becomes incapacitated and can’t make decisions for themselves, a successor trustee has to be named. The trust is irrevocable only until capacity returns to the grantor and the change of status is in order to protect the trust from being changed in the meantime.

Who Can Make Changes to a Trust

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How to Change the Trustee of an Irrevocable Trust

How to Change the Trustee of an Irrevocable Trust

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When creating an irrevocable trust, make sure to list the procedure for replacing a trustee. If that is not noted, you must get written consent from all the beneficiaries to change the trustee. In addition, the trustor, current trustee, and all trust beneficiaries must sign an amendment to change the trustee. Also, the new trustee has to consent to his or her new role.

 

Benefits of an Irrevocable Trust

 

If your primary goal is to reduce assets and property subject to estate taxes by removing them from your estate, then an irrevocable trust is preferred over a revocable one.

Also, you are relieved of the tax implications and liability on the income generated by the trust assets since the assets have been transferred to the trust. But, bear in mind that asset distributions probably will have some income tax consequences.

Another benefit is that the trust funds are not considered a part of the assets or income of a beneficiary, so she or he may meet stringent income and asset limitations when applying for government benefits such as Medicaid.

 

Why Use an Irrevocable Trust?

If you need to make a change to your irrevocable trust, but the terms of the trust don’t let you, consider reaching out to an estate planning attorney near me to obtain proper legal advice. In some cases, terminating or amending irrevocable trusts don’t require court involvement.

Although they are labeled as irrevocable, that does not mean these trusts are unchangeable no matter the circumstances.

The right estate planning attorney can explain irrevocable trust amendment mechanisms, what type of trust you may need, how a particular process works, as well as provide qualified legal services.

Thinking about death rarely feels pleasant, but it’s always better to be safe than sorry. Retain a trusted attorney from a law firm like The Law Office of Paul Black and take advantage of an initial 15-minute free consultation via phone. We look forward to assisting you.

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