Given how popular trusts are within an estate plan, there is a very good chance that you will be directly involved with a trust at some point in your life. Trusts are broadly divided into testamentary and living trusts with the latter being further divided into revocable and irrevocable living trusts. If you are faced with the desire to modify or terminate an irrevocable living trust you may assume that it cannot be done; however, that is not entirely true. A Crenshaw trust attorney at Collins Law Group explains how it may actually be possible to modify or terminate an irrevocable living trust.
The Irrevocable Living Trust
The name “irrevocable” living trust would imply that it is a trust that cannot be revoked, modified, or terminated. In fact, if you are the Settlor (the person creating the trust), you should indeed consider the terms of an irrevocable living trust to be set in stone. In fact, the Settlor of an irrevocable trust is not able to modify or revoke the trust without the consent of additional parties to the trust and/or court approval. There are, however, other ways in which even an irrevocable living trust can be changed.
Uniform Trust Code
If the trust was created in a state that has adopted the Uniform Trust Code (UTC), provisions in that code may allow modification of the trust. Specifically, Section 411(a) allows an action to modify a trust to be brought by a Trustee, a beneficiary, or the settlor if the settlor and all beneficiaries consent. If all parties consent, modification if possible even if that modification goes against the trust purpose. In addition, Section 411(b) allows for a modification if the settlor is dead or does not consent if all beneficiaries consent and the modification is not inconsistent with a material purpose of the trust. Finally, Section 411(e) permits a court to order a modification without agreement of all beneficiaries as long as the modification would not be against a material purpose of the trust and the objecting party is adequately protected. Unfortunately, however, California has not adopted the Uniform Trust Code.
Modifying an Irrevocable Trust under California Law
Although California has yet to adopt the Uniform Trust Code, there are several statutes within the California Probate Code that address the modification or termination of an irrevocable trust.
Under Probate Code §15404(a) any trust may be modified or terminated by the written consent of the settlor and all beneficiaries without court approval of the modification or termination. This is the easiest way to modify an irrevocable trust; however, if you have a beneficiary who does not agree, or who has yet to be born, this route won’t work. §15404(b) allows you to modify or partially terminate a trust even without the consent of all beneficiaries upon petition to the court. You must still have the consent of the settlor and the modification cannot substantially impair the interests of the beneficiaries who do not consent.
In addition, Probate Code §15403(a) specifically allows a court to grant the modification or termination of an irrevocable trust if all beneficiaries consent. The ability to modify or terminate an irrevocable trust is hindered, however, by §15403(b) which states “If the continuance of the trust is necessary to carry out a material purpose of the trust, the trust cannot be modified or terminated unless the court, in its discretion, determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust.”
Finally, an irrevocable trust may be modified or terminated without the consent of all beneficiaries using the “changed circumstances” doctrine which is codified in Probate Code §15409(a) which reads as follows:
(a) On petition by a trustee or beneficiary, the court may modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circumstances not known to the settlor and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially impair the accomplishment of the purposes of the trust. In this case, if necessary to carry out the purposes of the trust, the court may order the trustee to do acts that are not authorized or are forbidden by the trust instrument.
Contact Collins Law Group
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to disinherit an heir to your estate, consult with an experienced estate planning attorney near you. Contact the Collins Law Group by calling (310) 677-9787 to register for one of our FREE estate planning workshops.
Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.