An irrevocable trust is one that usually cannot be revoked, modified or amended. Trusts can become irrevocable in several ways. Some are created to be irrevocable at the time they are created. An example of this type of irrevocable trust is a Irrevocable Life Insurance Trust (ILIT). This is a type of trust that is created to hold life insurance and pass the death benefit from such policies to the beneficiaries of the trust without incurring any income or estate taxes on the transfer. Such a trust cannot be revoked, changed, or amended after it is created except by court order.
Some trusts for married couples become irrevocable upon the death of the first spouse. A typical example is an A/B trust, sometimes called a Bypass Trust or Exemption Trust. With this type of trust, the Deceased Spouse’s Trust becomes irrevocable after the first death and cannot be changed, amended, or revoked.
Other trusts which can be irrevocable are certain types of charitable trusts and a Qualified Personal Residence Trust (QPRT)There are some instances however, where a trust which is irrevocable can be modified by court order. Civil Code Section 3399 permits a contract (which a trust is) to be reformed when the writing, through mistake or fraud, fails to express the intent of the parties. Reforming a trust might be appropriate when due to a drafting error or scrivener’s error, the intent of the individuals creating the trust has not been fulfilled.
Probate Code Section 15409 also permits a trust to be modified if “owing to circumstances not known to the settlor (person creating the trust) and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially limit the accomplishment of the purposes of the trust.” The scope of what the court can do is broad. The Probate Court can authorize acts that are forbidden by the terms of the trust or not authorized.
Under Probate Code Section 15403 all beneficiaries of an irrevocable trust can consent to modification or termination of a trust unless the court finds that a material purpose remains for continuance of the trust and that purpose outweighs the arguments for termination or modification. Probate Code Section 15404 is even broader allowing termination or modification of a trust without court order if the settlor and all beneficiaries of the trust consent.
So there are alternatives if you have an irrevocable trust you want to reform, modify, or terminate. We offer a complimentary consultation if you would your irrevocable trust reviewed.