As I have discussed in the past,
there are three reasons to create irrevocable trusts. The word “Irrevocable” usually implies no ability to change, and most people believe that a Trustee is required to adhere to the language contained in the irrevocable trust, even though times and circumstances may have changed. Nonetheless, in many circumstances, irrevocable trusts may actually be legally changed, modified or revoked in New York State.
- ALL PARTIES AGREE TO MODIFY: The first circumstance exists when the Grantor of the Trust is still alive, wants to make a change and ALL the beneficiaries of the Trust agree with the proposed change. In this case, an amendment of the Trust or a revocation can be done – as long as everyone signs. Of course, this is often an impractical solution, as often beneficiaries either do not agree to a change (who wants to lose money that is coming to them?) or are incapable of agreement (because at least one of them is a minor).
- A TRUSTEE WITH DISCRETION OPTS TO MODIFY: The second scenario is called “decanting”. Unless specifically forbidden to do so by the document, the Trustee may “decant” the Trust into another one if he has substantial power regarding distributing trust funds and to which beneficiaries. The new Trust may have fewer beneficiaries than the original one (but not more), may change tax provisions, and may give different powers to the Trustee. Most beneficially, no consent from the beneficiaries is needed!
- APPEAL TO THE COURT: And even if these two methods are unavailable to you, a Grantor or a Trustee may petition a court to modify the terms of the trust if it is in the best interests of the beneficiaries. While this process does require court approval, and the court could decide to keep the trust in its current form, if a strong valid point can be proven (Example: a trust that was meant to give income to the Grantor for life, and all remaining money to a charity upon the grantor’s death is almost depleted because the Grantor is living too long) the court may allow the trust to be modified.
As you can see, an Irrevocable Trust does not always remain one!
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