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Schedule Your Free Consulation3 Examples of When an Irrevocable Trust Can (and Should) Be Modified
Did you know that irrevocable trusts can be modified? If you did not, you are not alone. The name lends itself to that very misconception. However, the truth is that changes in laws, family, trustees, and finances can frustrate the trustmaker’s original intent when the trust was created. Or, sometimes, an error in the trust document is identified. When this happens, it is wise to consider changing the trust, even if that trust is irrevocable.
Here are three examples of when an irrevocable trust can, and should, be modified or terminated:
A trustee may need to create liquidity for various reasons:
1. Changing tax law. Adam created an irrevocable trust in 1980 that held a life insurance policy. Due to the federal estate tax exemption at that time, Adam needed a tool that would remove the value of the proceeds from his estate at his death. To facilitate this, an irrevocable life insurance trust was created to own the life insurance policy and be the beneficiary of the proceeds at Adam’s death. Today, the federal estate tax exemption has significantly increased and Adam no longer needs to worry about removing the life insurance proceeds from his estate to avoid estate taxation at his death.
2. Changing family circumstances Barbara created an irrevocable trust for her grandchild, Christine. Now an adult, Christine has a disability and would benefit from government assistance. According to the current instructions for how money is to be given to Christine, Barbara’s trust would unintentionally disqualify Christine from receiving much-needed government assistance.
3. Discovering Errors David Sr. created an irrevocable trust to provide for his numerous children and grandchildren. However, after the trust was created, his son (David Jr.) discovered that his son (David III) had been mistakenly omitted from the document.
● Responding to opportunities or challenges. Market opportunities or unexpected financial challenges may arise that require quick access to funds. Creating liquidity enables the trustee to seize favorable investment opportunities or address unforeseen financial needs effectively.
Are you sure your trust is still working for you?
If you are not sure whether an irrevocable trust is still a good fit or if you wonder whether you can benefit more from your trust, we are happy to meet with you so we can analyze your current trust. Perhaps modifying or terminating your irrevocable trust is a good option. Making that determination simply requires a conversation about your goals and a review of the trust itself. Please call our office now to schedule time to review your current trust or discuss the potential benefits that a trust can provide to address your unique situation and goals.
