Many people believe that an irrevocable trust cannot be modified. However, changes in the law, family, trustees, and finances sometimes frustrate the trust maker’s original intent. Sometimes an error in the trust document itself is identified. When this happens, it makes sense to consider trust modifications, even when the trust is irrevocable. Here are three examples of when an irrevocable trust can, and should, be modified or terminated:
- Changing tax law. Alex created an irrevocable trust in 1980 which held a life insurance policy in order to exclude life insurance proceeds from his estate for federal estate tax purposes. Today, the federal estate tax exemption has increased substantially which may make the trust unnecessary.
- Changing family circumstances. Brenda created an irrevocable trust for her grandchild, Carly. Carly is now an adult and suffers from a disability. She would benefit from government assistance; however, Brenda’s trust would disqualify Carly from receiving that assistance.
- Discovering errors. Daniel Sr. created an irrevocable trust to provide for his children and grandchildren. After the trust was created, however, Daniel realized that his grandson (Daniel III) had been mistakenly omitted from the document.
Is Your Trust Still Working for You?
If you have an irrevocable trust and are not sure whether it is still a good fit, give us a call. We can analyze the trust and determine if a trust modification or termination is a good option. Making that determination simply requires a conversation and a look at the document itself. If we can help you, just let us know.