Can an Irrevocable Trust be Amended?
11.09.2023
Author: Attorney Eric S. Johnson
Most trusts are revocable trusts. Revocable trusts can be amended (or changed) by the person who created the trust (the settlor). Revocable trusts are generally preferred because the settlor retains the flexibility to adapt to life’s changing circumstances.
There are certain unique circumstances where a settlor will want to create a trust that is irrevocable – that is intended not to be amended or revoked after its creation. For example, an irrevocable trust can be used in limited circumstances to protect assets, to reduce or avoid estate taxes, or to attain or maintain eligibility for certain government programs. The class of individuals who can benefit from irrevocable trusts is small. Outside of these limited circumstances, the drawbacks of a trust that is irrevocable trust at its creation outweigh its benefits.
Besides trusts that are irrevocable from the outset, trusts that start out as revocable become irrevocable upon the death of the settlor.
Fortunately, there are some ways to amend an irrevocable trust in Wisconsin, depending on the situation and the goals of the parties. The options include:
- Judicial Modification: Under certain limited circumstances, a trustee or beneficiary can ask the Court to modify the terms of an irrevocable trust or to terminate the trust. The trustee or beneficiary generally must prove that circumstances not anticipated by the settlor require modification of the trust to fulfill the trust’s purpose, or that modification or termination will otherwise further the settlors’ intent regarding the trust.
- Judicial Settlement Agreement: An irrevocable trust may be modified with the consent of all the present and future beneficiaries, if the Court concludes that modification of the trust is not inconsistent with a material purpose of the trust. An irrevocable trust may be terminated upon the consent of all the beneficiaries, if the Court concludes that continuation of the trust is not necessary to achieve any material purpose of the trust. This agreement must be in writing.
- Nonjudicial Settlement Agreement: An irrevocable trust may be modified or terminated, without involving the Court, if the settlor is still living, and the settlor and all present and future beneficiaries unanimously agree. This process can be used to amend or terminate an irrevocable trust even if modification or termination is inconsistent with a material purpose of the trust. Such an agreement must be in writing.
- “Decanting”: This is a process of transferring the assets from an existing irrevocable trust to a different one with different terms. The trustee has the authority to do this only under certain circumstances, if the trust the trust document allows it and the law does not prohibit it.
A person creating a trust should not depend on any of the above methods to alter or terminate an irrevocable trust being available. Their use depends on the existence of circumstances outside the settlor’s control. The ability to change the terms of an irrevocable trust is limited to special circumstances and is a complex process. If it is conceivable that you would ever want to amend or terminate your trust, you should have an attorney prepare a revocable trust. If you have an irrevocable trust and you want to amend it, you should consult with an experienced estate planning attorney who can advise you on the best option for your situation.