This might seem like a ridiculous question. Why would something that is specifically titled “irrevocable” be allowed to be revoked or amended? The short answer is, no, irrevocable trusts are not allowed to be amended or terminated, or at least that’s what the language in the trust says. However, under certain situations, irrevocable trusts can be amended.
Irrevocable trusts have a grantor, a trustee, and a beneficiary or beneficiaries. Irrevocable trusts typically contain terms whereby the trust cannot be modified, amended or terminated without the permission of the beneficiaries. The grantor, or the creator of the trust, effectively transfers all ownership of the assets they place into the trust. Thus, the grantor no longer has direct control over how the assets in the trust are handled, but the grantor will appoint a trustee who will be responsible for managing these assets.
Irrevocable trusts generally minimize estate taxes as the property transferred to the trust will no longer count toward the gross value of the estate. Any income earned by the trust is also not taxable to the grantor.
These types of trusts also provide protection from the beneficiaries’ creditors. Irrevocable trusts can be extremely useful for those individuals who are more vulnerable to being sued due to the nature of the work they do. Additionally, these trusts can prevent beneficiaries from misusing the assets as the grantor can set conditions for distribution. Living and testamentary trusts are two examples of irrevocable trusts.
Typically, you need the permission of the trust beneficiaries in order to modify, amend, or terminate the trust. However, even if all the beneficiaries agree, any changes must still be consistent with the original purpose or intent of the trust.
There are also certain circumstances that may arise that can legally allow you to amend or terminate the trust. If these occur, you may be able to go to court and ask a magistrate to approve changes to or end the trust. Some circumstances that may give rise to the ability to change or terminate the trust include: significant, unforeseeable changes in circumstances; the trust has become unreasonably expensive to administer; a mistake of law was made when creating the trust; federal law has changed with which the trust no longer conforms; property held by the trust is sold or disposed of that effectively ends the trust; and/or the trust wants to obtain certain tax benefits.
Your trust must be irrevocable; however, you're retaining the following rights and powers does not make your trust irrevocable:
Some trusts provide the Trustee with the ability to distribute the income and assets of the trust at his or her discretion. In these situations, the assets of the trust can be moved or distributed into a new trust with better terms and conditions ensuring that the trust is managed effectively. This is what is known as “decanting” a trust. There are specific rules one must follow when decanting a trust; for example, any changes made must benefit the beneficiaries.
Amending or terminating an irrevocable trust can be difficult process. It’s best to seek the advice of an estate planning attorney in your state prior to attempting to do this on your own.