Tips on How to Fix an Outdated Irrevocable Trust
Trusts have been used for decades as an effective estate planning tool to avoid the cost and hassle of probate and ensure your assets are properly managed for the benefit of your beneficiaries. There are a myriad of ways a trust can be utilized, both for the transfer of assets within a family and in the context of business where company stock is held in trust for two business owners.
Some people mistakenly believe that when they establish a trust, it will remain in effect for an infinite period of time. This is not accurate. The law surrounding trusts and estate planning in general is constantly changing. This is why routinely reviewing, and potentially updating, your trust is essential (and incorporating review requirements into your trust so whomever manages the trust continues to keep it updated as well).
An example of when updating a trust may become necessary is when a great-grandparent more than 70 years ago established a trust for the benefit of their beneficiaries. At this time, the settlor’s great-grandchildren are the beneficiaries. However, the irrevocable trust includes provisions that are simply impractical or unrealistic when it comes to administrating the trust for the great-grandchildren. In this situation, it may be possible to amend the terms of the irrevocable trust by “decanting” the existing trust into a brand new one.
Decanting an Irrevocable Trust
You may be thinking to yourself, “Decanting? Isn’t that something you do to a bottle of wine?” It turns out the term extends to the field of trust and estate law. Decanting a trust basically means you transfer the assets held in an existing irrevocable trust into a newly established trust with different, more practical terms for the named beneficiaries. Trust decanting is allowed in Missouri pursuant to Missouri Revised Statute § 456.4-419. This statute specifically states:
Unless the terms of the trust instrument expressly provide otherwise, a trustee who has discretionary power under the terms of a trust to make a distribution of income or principal, whether or not limited by an ascertainable standard, to or for the benefit of one or more beneficiaries of a trust, the first trust, may instead exercise such discretionary power by appointing all or part of the income or principal subject to such discretionary power in favor of a trustee of a second trust, the second trust, created under either the same or different trust instrument in the event that the trustee of the first trust decides that the appointment is necessary or desirable after taking into account the terms and purposes of the first trust, the terms and purposes of the second trust, and the consequences of the distribution.
1.Except for a trust established by a court under section 475.092, 475.093, 511.
030, or 42 U.S.C. Section 1396p(d)(4), a noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries, without court approval, even if the modification or termination is inconsistent with a material purpose of the trust. A settlor’s power to consent to a trust’s termination or modification may be exercised by an agent under a power of attorney only to the extent expressly authorized by the power of attorney or the terms of the trust; by the settlor’s conservator with the approval of the court supervising the conservatorship if an agent is not so authorized; or by the settlor’s conservator ad litem with the approval of the court if an agent is not so authorized and a conservator has not been appointed.
2.Upon termination of a trust under subsection 1 of this section, the trustee shall distribute the trust property as agreed by the beneficiaries.
3.If not all of the beneficiaries consent to a proposed modification or termination of the trust under subsection 1 of this section, the modification or termination may be approved by the court if the court is satisfied that:
(1) if all of the beneficiaries had consented, the trust could have been modified or terminated under subsection 1 of this section; and
(2) the interests of a beneficiary who does not consent will be adequately protected.
Situations Where Decanting a Trust May Make Sense
- Clarify ambiguous provisions
- Correct drafting errors
- Consolidate multiple trusts
- Reform a trust that terminates when a beneficiary reaches a certain age and turn it into a lifetime trust
- Modify a support trust into a full discretionary trust to protect the trust assets from the beneficiary’s creditors
- Provide for and protect a beneficiary with special needs.
Speak to a St. Charles Trust and Estate Planning Attorney
Polaris Law Group takes pride in offering an effective, full-service experience to our clients. If you want to ensure that you and your family are properly cared for, contact Polaris Law Group’s experienced trust and estate attorneys, Scott Stork and Raymond Chandler today. Scott and Raymond are seasoned estate planning attorneys and are members of the National Network of Estate Planning Attorneys, the National Academy of Elder Law Attorneys, and Elder Counsel. Schedule a meeting by phone or by filling out a quick contact form today.