Reprinted with permission from Probate & Property, September/October 2018 (32:5), at 23-28. ©2018 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
This is the first of two excerpts from this article that will appear in GPSolo eReport.
Grantors create irrevocable trusts for various tax and non-tax objectives. Irrevocable trusts are trusts that cannot be revoked or significantly amended by the grantor, and they are often viewed as not capable of being modified or terminated after the grantor’s death in light of their “irrevocability.” When an irrevocable trust has become outdated, lacks flexibility, or is otherwise deficient, a question arises as to whether it can be changed or modified while maintaining the intent of the grantor and the purpose of the trust. Contrary to common belief, irrevocable trusts can be changed or terminated under certain circumstances if authorized by the trust instrument or applicable state law. In many jurisdictions, however, modification of a trust can be accomplished only through consent of the grantor and all the beneficiaries or, in the absence of consent or upon the grantor’s death, lengthy and costly court proceedings. Moreover, a judicial modification may not always meet with success, because the proponent of the change may not be able to establish that the modification comports with the settlor’s intent or otherwise does not frustrate a material purpose of the trust. One powerful tool for modifying a trust, however, is the concept of decanting, a process by which the trustee of the obsolete or deficient trust distributes the assets of that trust to a second trust in accordance with a decanting agreement that operates to modernize or cure the deficiencies of the first trust. A potential advantage of decanting, where authorized by state law, is that it may permit a trustee to modify a trust without the consent of the grantor and the beneficiaries or the time, expense, uncertainty, and publicity associated with obtaining court approval of the modification. As such, decanting can be a useful alternative to the modification of an existing trust.