Irrevocable trust reformation

Question:

I have an irrevocable trust. I would like to change how the real estate and cash in the trust is to be distributed. Some of my children could use the cash that is in the trust now. Also, I have given some kids money to help them now and would like to change the trust distribution to reflect the amount they have already received. How can I change the trust?

Response:

Irrevocable trusts are by and large “irrevocable,” meaning that they cannot be revoked or changed through amendments. However, some are more irrevocable than others. There are two main ways that the distributions of irrevocable trusts may be changed, but they both must be provided for in the trust document from the outset.

The first possibility is that the trust gives someone else, often called a “trust protector,” the power to make changes to the trust. This mechanism is often used in asset protection trusts and special needs trusts.

The second, which is more common, is for the grantor to retain a power of appointment, meaning that they reserve the right to redirect how the trust distributions will be made. Usually these powers of appointment are “testamentary” which means that they must be exercised or carried out through your will. Interestingly (at least for a lawyer), this would mean that your will would have to be probated, but the trust property would still not be part of your probate estate. The power of appointment would simply change the trust distributions, similar to how a train would be diverted from one track to another by a railroad switch.

If your trust does not contain either of these provisions, it still may be possible to make changes if all your children are in agreement. Depending on your state law, the trust may be revised or “reformed” if all the interested parties are on board. This may require court action or simply a written agreement, referred to as a “nonjudicial settlement agreement.”

A final option is to “decant” the trust, meaning transfer all of its assets, into a new trust with the terms you want. The availability of this solution depends on the trust law in your state and may require the agreement of all the beneficiaries or simply giving them notice of the action.

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