As you may know, there are two basic types of trusts:

• Revocable trusts can be changed, easily and at any time, by the trust settlor.
• Irrevocable trusts cannot be easily changed. Their provisions are intended to be permanent.

It might seem counterintuitive for anyone to set up a trust that can’t be changed, but irrevocable trusts have a variety of potential benefits. If properly established, they can help decrease the settlor’s estate tax liability or protect their assets from creditors.

Still, the fact remains that irrevocable trusts are, well… irrevocable. And if the trust includes a provision that was carelessly written, or that becomes outdated for whatever reason, then this can cause a lot of problems.

The best thing to do with an irrevocable trust is to plan it out very carefully before you draft it, so as to avoid as many potential pitfalls as you can. If you are writing an irrevocable trust, you should consult with a trust attorney; this is true of any trust, but doubly so if it is irrevocable.

That said, no plan is perfect. Mistakes and unforeseen eventualities do occur, even with well-crafted trusts. There will always be a certain degree of risk when the provision of a trust are unchanging and life is constantly changing.

If you’ve created an irrevocable trust and now realize that it needs to be changed, then you should not assume that all hope is lost! Irrevocable trusts are often changeable, but to do so is a complex legal process which should not be undertaken lightly.

There are a few different pathways to modifying an irrevocable trust, and in this article, we will explain the basics of how it can be done.

First: Read the Trust Carefully

Before you decide to change an irrevocable trust, it is important to know what you are dealing with.

Trusts tend to be written in complex legal language which a layman cannot be reasonably expected to understand. It can help to consult an attorney at this point, although a brief read-through on your own can give you a basic picture.

Some irrevocable trusts do not start out that way. They are written to be revocable at first, and then to become irrevocable after a certain triggering event (such as the death of the settlor). If a trust is actually revocable, then changing it is usually a fairly easy process.

If the trust really is irrevocable, though, then there are still ways to change it.

Modifying the Trust: The Basics

Modifying the Trust: The Basics

The basic procedure for modifying an irrevocable trust is laid out in §15400-15414 of the California Probate Code.

There are a few considerations to take into account here, but generally, the easiest way to change a trust is if all the parties involved agree to the change.

Remember, a trust has three main parties:

• The settlor is the creator of the trust, and the owner of the assets transferred into the trust.
• The trustee is the party tasked with handling the assets in the trust, according to the plan laid out by the settlor.
• The beneficiary is the party chosen by the settlor to receive the assets in the trust. (If a trust is intended for the purposes of estate planning, there are usually multiple beneficiaries.)

For now, we’ll be focusing primarily on the settlor and beneficiaries… but the trustee can have an important role in modifying the trust, which we’ll get to later.

Now, let’s go through a few possible scenarios…

The settlor and all the beneficiaries agree on the change.

If everyone is on board with the proposed modification, then things are usually pretty straightforward. You can generally modify the trust, with the written consent of the settlor and beneficiaries, even if it is irrevocable.

California law says that you can do this on your own, “without court approval.” However, it is still best to take the matter to a probate court and have the change formally approved. This will strengthen the efficacy of the modification, so that it is less likely to be called into question later if a dispute arises.

Don’t worry too much, though: if the trustee and all the beneficiaries agree on the modification, then the court will probably approve it without much difficulty.

All the beneficiaries (but not necessarily the settlor) agree on the change.

If all of the beneficiaries agree that a change needs to be made, then you can often still modify the trust, even without the settlor’s consent.

In this case, you will definitely have to go to probate court to get the change approved. No private agreement is possible without the settlor on board. The court is still relatively likely to approve the modification if all of the beneficiaries are in agreement, but the legal bar is somewhat higher.

The court will not approve a modification of the trust if doing so would harm “a material purpose of the trust,” unless the court decides that the reason to change the trust “outweighs the interest” in accomplishing that material purpose. Basically, you must prove that the reason to change the trust is big enough that it outweighs the interest in maintaining it.

This is a cost-benefit analysis that will vary from situation to situation, and much of it is somewhat subjective and up to the discretion of the court. This means that a lot depends on the judge, and so it is best not to go into this sort of court proceeding empty-handed. You should hire an attorney to help make your case.

Some of the beneficiaries (but not all of them) agree on the change.

If not all of the beneficiaries are in agreement, then a modification may be possible, but it will be somewhat more difficult.

As before, you will need to petition the probate court for a change. The court will take into account the interests of all the beneficiaries, including those who do not agree to the modification. It will only approve the change “if the interests of the beneficiaries who do not consent are not substantially impaired.”

Demonstrating that the change will not go against the other beneficiaries’ interests can be tough, and once again, much depends on the judge and the facts of the individual case. You will have a much stronger change of getting your modification approved by the probate court if you hire legal representation.

Also, you will need the settlor on board for a modification on which not all of the beneficiaries agree.

Other Causes for Modifying a Trust

Sometimes, the law allows a trustee or beneficiary to unilaterally petition the court for the modification of a trust. However, this requires one of two specific scenarios to happen. If you can prove one of these, then your chance of modifying the trust will be much stronger:

Circumstances have caused the trust’s basic purpose to be undermined.

Courts recognize that circumstances change, and that irrevocable trusts may become obsolete based on unforeseen developments. That is why there is some mercy written into the law.

If circumstances arise that were “not known to the settlor and not anticipated by the settlor” at the time the trust was drafted, then the trust may be modified, but only if continuing to enforce the trust’s original terms would “defeat or substantially impair the accomplishment of the purposes of the trust.”

The trust costs more than it is worth.

A trust is not supposed to be a money sink, and the courts may allow you to change it if it is costing more than it is bringing in.

This occurs if the costs of trust administration become so expensive, in relation to the value of the assets in the trust, that to continue the trust in its current form would “defeat or substantially impair the accomplishment of its purposes.”

In such a case, you may petition the probate court to modify the trust, terminate it, or bring in a new trustee.

Decanting: A Possible Shortcut

There is another way to alter an irrevocable trust, one which is often simpler than going through the courts. This method is known as decanting. It is a relatively new provision in California law, having only been in effect for a few years, since the state passed the Uniform Trust Decanting Act in 2018.

Decanting is a process by which some or all of the assets within an irrevocable trust may be moved to an entirely new trust, with different provisions. (“Decant” literally means to “pour.”) If done properly, this can allow you to effectively modify the terms of an irrevocable trust without technically doing so, thereby getting around the process of having to make an appeal to the court.

Unlike with the above methods of trust modification, it is the trustee, and not the settlor or beneficiaries, who has the power to decant a trust. There are several important limits on the trustee’s power, though:

• A trustee must give 60 days’ advance written notice to all of the settlors, beneficiaries, and other interested parties before decanting a trust, informing them of the intent to decant and including the texts of the old and new trusts. During that 60-day period, the settlors and beneficiaries have the right to challenge the decanting in court.
• The trustee still has a fiduciary duty to act in the interests of the beneficiaries, and the new trust must be in accordance with the settlor’s original intent and serve the same basic purpose.
• Decanting is forbidden for a few types of trusts, including those which are primarily charitable, and those which have a provision that specifically bans decanting.
• The trustee cannot change all provisions of the trust. If the trustee has limited distributive discretion, then they can only change the administrative aspects of the trust, while if they have expanded distributive discretion, they can also modify some dispositive aspects. (Basically, the trustee’s power in the original trust determines how much they will be able to alter in the new one.)

Although the Uniform Trust Decanting Act took effect at the beginning of 2019, you can still decant a trust that was created before that date. Because the Act is so new, though, there is not a lot of case law on decanting, and so you may be operating in murkier legal territory than you would if you used a more traditional method of trust modification.

What If Some Beneficiaries Are Minors?

It is common for a trust to have beneficiaries who are still minors – and it is even fairly common for a trust to have beneficiaries who are not yet born. There may also be a situation in which an adult beneficiary is mentally incapacitated or otherwise unable to advocate for one’s own needs.

The trust must still be modified with the best interests of all beneficiaries in mind, even those who cannot directly speak for themselves. This is true whether you are changing a trust through probate court or decanting it.

In most cases, children, the unborn, and the mentally incapacitated will be represented by a guardian ad litem. The guardian ad litem is appointed by the probate court to serve the interests of the beneficiary in question. This can often make the process of modifying an irrevocable trust even more involved.

When to Speak to an Trust Attorney

Modifying an irrevocable trust is no easy process. That is why it is called “irrevocable,” after all. And while we’ve discussed the basics here, there are still a great many complications, and no shortage of ways that this process can go wrong.

If you are navigating the thorny world of trust modification, then it can help greatly to consult with an attorney. This is particularly true if you are dealing with a more complex situation, such as one in which some of the beneficiaries do not agree on the proposed change. The same goes for trust decanting, which is an extremely involved legal process with a lot of moving parts.

Although the process is hard, you do not have to face it alone. Please do not hesitate to contact us with any questions you may have about the process of changing an irrevocable trust. We are experts in the field, and we would be happy to arrange a free consultation where we can listen to your specific questions and concerns.