Updating a trust–what does it mean?   

Updating a Trust or Will: Can It Be Done?

Clients often ask a simple but important question: “Can I change my trust?” The short answer is yes—often you can. But how, when, and to what extent depends on the type of trust and the law of your state.

Key terms: revoke, modify, amend

• Revoke: To revoke means to annul or take something back entirely. When you revoke a trust, you are essentially cancelling it.
• Modify: To modify means to make changes to something in an effort to improve it or better align it with your current wishes.
• Amend: To amend a document is to make minor changes so that it is more fair, accurate, or current, without replacing the entire document.

Updating a revocable trust

By its very nature, a revocable trust can generally be revoked, amended, and modified by the grantor (also called the settlor or trustor). This is true so long as:

• The grantor is alive, and
• The grantor is not incapacitated, and
• The trust instrument permits changes by the grantor.

Once the grantor passes away, the trust typically becomes irrevocable.

A grantor can:

• Revoke the trust in whole or in part.
• Restate and amend the trust—essentially replace it with a new version.
• Remove or replace trustees.
• Remove or change beneficiaries, under certain conditions.

While a revocable trust may be modified, amended, or even revoked, there may be tax implications and other legal consequences to making certain changes. Because of this, it is wise to consult with an attorney before making any changes to a revocable trust.

When should you update a trust or will?

It is recommended that you consider reviewing and possibly updating your trust or will whenever a triggering event occurs. Examples include:

• Family changes:
  • A new child or grandchild joins the family
  • A child gets married or divorced
  • A child reaches a certain age or milestone
  • A family member becomes disabled
  • A pet joins the family and you want to provide for its care
• Personal changes:
  • You get divorced or remarry
  • You relocate to a new state
  • You purchase or sell real property
  • You want to change your trustee, executor, agent for healthcare, or agent for finances

Each of these events can affect how your estate plan works in practice. A conversation with an attorney after a major life change can help ensure your documents still reflect your wishes.

Can an irrevocable trust be modified?

By definition, an irrevocable trust cannot simply be revoked. However, under certain circumstances, it may be possible to change the terms of an irrevocable trust through a process called decanting.

What is decanting?

Think of decanting wine: You pour the good wine into a new bottle, leaving the sediment behind in the original bottle.

In the trust context, decanting means:

• Distributing the assets from one trust into a new trust,
• Leaving the unwanted terms behind in the original trust.

Thanks to common law and various state statutes, decanting permits the modification of certain irrevocable trusts under specific conditions.

Decanting laws and state differences

More than thirty states have enacted trust decanting laws, but they do not all use the same language or impose the same requirements.

• States with more stringent notice requirements (often requiring beneficiary notification before decanting) include:
  • California
  • Texas
  • Florida
  • New York
• States with more flexible notice requirements (including some that do not require beneficiary notice in certain circumstances) include:
  • Nevada
  • Tennessee
  • South Dakota
  • Wyoming

Because the rules vary significantly from state to state, it is essential to understand your own state’s law before attempting to decant an irrevocable trust.

Takeaways

• Irrevocable trusts can sometimes be changed. If you have an irrevocable trust and want to amend it, there may be legal ways to do so—such as decanting—depending on your state’s law and the terms of your trust.
• State law matters. Over thirty states have decanting statutes, but they differ in flexibility and in notice requirements to beneficiaries.
• Use a lawyer. Before attempting to decant or otherwise modify an irrevocable trust, consult with a qualified trusts and estates attorney who understands your state’s decanting laws and tax implications.
• Read your documents. Make sure you understand the implications of each provision in your trust or will. Read them carefully—don’t just sign off. Ask questions until you feel clear and confident.