Bart Featured on Making Changes to Irrevocable Trusts

Partner Susan Bart, an American College of Trust and Estate Counsel (ACTEC) fellow, spoke with ACTEC about the basic requirements for a trust to be considered irrevocable and how the trust document can still allow changes.

“Sometimes a trust document designates an independent person - a trust protector - as someone who can make certain changes to the trust,” Susan said.

“Another way the trust can allow for changes is by giving a power of appointment to a beneficiary that would allow them to direct that the trust assets should be distributed among a particular group of beneficiaries, such as descendants. And in exercising that power, the person exercising it could either direct that the assets go outright or in trust to those people, and they could specify different terms for the trust.”

Susan added that even if the trust document does not specifically allow changes, some states have started passing statutes allowing some people – not the grantor – to alter some of the trust’s provisions.

“For example, one set of statutes allows a trustee and the beneficiaries of the trust to make certain changes to a trust if they're all in agreement,” she said. “But generally, under those statutes the changes are limited to just changing administrative provisions, like investment provisions or trustee provisions. Generally, you cannot use those statutes to change the beneficial interests.”

Susan noted risks people need to be aware of when discussing changes to a trust.

“One set of risks have to do with adverse tax consequences. In decanting or making changes, you might trigger some adverse income or gift tax or generation-skipping tax consequences,” she said.

“Another set of potential risks is for the trustee who's participating in this because a trustee has to abide by their fiduciary duties and should only make a modification to a trust if it helps carry out the underlying purpose of the trust and if it's consistent with their fiduciary duty to all the beneficiaries of the trust.”

Read the full interview from ACTEC here.