Is your family currently trying to determine whether you can change an irrevocable trust? Find out what your legal options are and why this question might come up in the first place.
What Is an Irrevocable Trust?
An irrevocable trust is a trust whose terms cannot be changed, modified, or terminated without the beneficiary or the beneficiary designated by the grantor. Once the grantor effectively transfers all asset ownership into the trust, they legally remove their own ownership rights to both the assets and the trust.
An irrevocable trust is the opposite of a revocable trust, where the grantor can make modifications to the trust. But in doing so, the grantor yields certain benefits, like creditor protection, for example.
How Irrevocable Trusts Work
The primary reason for forming an irrevocable trust is property and tax considerations. The advantage of this type of document is that it eliminates all property accidents by effectively removing assets from the taxable assets of the giver or the person who pays taxes on property income.
Although tax regulations vary from state to state, in most cases, if the grantor is the trustee of the trust, they will not receive these benefits. Trust assets can include but are not limited to cash, real estate, and property.
Creating any type of trust can be so difficult that it requires a lawyer. Therefore, many trusts are seen as tools for the wealthy. However, trusts certainly have their places in inheritance and estate planning.
Let’s take a moment to go over some of the common verbiages you’ll see associated with traditional trusts.
Beneficiary: Those who are designated in a trust or estate plan and who receive a number of a party’s assets after the person dies or is no longer capable of managing their assets.
Executor: The person who is written in the trust or commissioned by the court to handle the personal financial obligations of the deceased.
Intestate: When someone dies without a valid trust, Florida declares the deceased’s property as “intestate.”
Personal Representative: A person who is appointed to legally supervise the dispersal of assets of the deceased’s estate.
When to Create an Irrevocable Trust
Irrevocable trusts are particularly useful for professionals (such as doctors or lawyers) who are engaged in matters or professions that may expose them to legal proceedings. After the assets are transferred to the designated trust, the ownership will be transferred to the designated beneficiary. Since the trust is not part of the legal process, it is immune from the influence of judgments and creditors.
What’re more, modern irrevocable trusts contain many clauses that were not normally found in previous versions of these tools. These add-ons provide greater flexibility in custody management and asset allocation. More current or more favorable regulations can ensure effective management of assets now and in the future. Other features that allow the trust to change its permanent residence status may provide additional tax savings or other benefits.
So, Are Changes Possible?
Perhaps. Generally, if you have a good reason to make changes to an irrevocable trust, you can go to court and ask the judge to sign off on said changes. In addition, some laws expressly allow the modification or termination of an irrevocable trust under certain circumstances. These situations can include:
- A mistake was made when creating the trust and needs to be amended.
- A grantor is given the right to make limited changes to the trust.
- Management of the trust becomes too expensive.
- When all beneficiaries agree to the change.
- When the situation changes significantly.
- For the purpose of gaining tax benefits.
For each of the above cases, specific requirements must also be met. For example, if all beneficiaries agree to the change, it must still be compatible with the trust’s objectives.
There are also times when modifying a trust is beneficial for the overall goals written within the trust. In such instances, you may have legal grounds to override the wishes of other beneficiaries if everyone can’t come to an agreement.
Keep in mind, though, that proceeding with such changes is often very challenging and can be expensive, depending on the extent of the changes.
If you have questions relating to trust and want to know what your legal rights are, you should contact an experienced attorney.
They can give you guidance and direction and assist you in making changes if you have the legal right to do so.
Contact Doane & Doane Today for Assistance
Doane & Doane was founded in 2003 and has continued to serve Southeast Florida’s residents and businesses through qualified legal and probate counsel. In fact, Doane & Doane is one of the area’s most trusted and respected tax and estate planning firms. If you need assistance with trusts of any kind, we encourage you to contact us at 561-656-0200. Alternatively, you can always fill out our online contact form, and we will promptly respond to your inquiry.
The information in this blog post is provided for informational purposes only and is not intended to be legal advice. You should not make a decision whether or not to contact an attorney based on the information in this blog post. No attorney-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.