Revoking An Irrevocable Trust: Can It Be Done?

While you may not completely understand all the legalities of an irrevocable trust, one thing that many do understand is that an irrevocable trust is, by its name, permanent—irrevocable. But despite that, is it still possible to terminate or revoke an irrevocable trust?

Why Irrevocability Matters

The law makes it very hard to undo or alter or dissolve an irrevocable trust, because that irrevocability comes with advantages—the main one being creditor protection. Other benefits of irrevocable trusts include assets not being counted for the purposes of qualifying for government benefits.

The logic goes that if you can’t revoke the trust, or reach the assets of the trust, then neither should your creditors.

If you could just haphazardly get rid of an irrevocable trust, you’d be getting the benefits of an irrevocable trust (creditor protection), without the drawbacks (the inability to touch the trust assets or alter the terms of the trust).

That said, nothing is impossible in law, and there are some limited circumstances when an irrevocable trust can be altered or revoked.

How Irrevocable Trusts Can be Terminated

Like any estate planning vehicles, irrevocable trusts can be revoked, if they were created because of fraud or coercion or undue influence, or if the creator (testator) was not of sound mind when the trust was created.  This often involves contested probate court litigation.

Irrevocable trusts can also be altered or dissolved, if all beneficiaries to the trust consent. The problem with this, is that often beneficiaries are incapacitated, whether due to health, disability, or age (being a minor). That means that a guardian may have to be appointed, to determine whether dissolving the trust is in the best interests of that particular beneficiary.

You can also argue that administering the trust is simply not worth the time or expense, considering the value of what is in the trust. If the estate is paying more to keep the trust alive than what the value in the trust is, this may be a viable argument.

Sometimes, the purposes of the trust may be defeated. Imagine an irrevocable trust that is set up to assist a severely disabled individual. Later, that individual dies, or else, significantly improves—either way, the purpose of the irrevocable trust—to care for a severely disabled person—no longer exists, nullifying the entire purpose of the trust.

Of course, an irrevocable trust itself can have terms under which it naturally expires. For example it may be for a specific time period, or until a specified event happens.

A Good Idea?

Remember that dissolving an irrevocable trust can have negative effects for you, if you are the creator. You may lose whatever protections the trust once provided, as well as financial benefits, government benefits, or asset protection benefits.

Any property that was once in the now-dissolved irrevocable trust now has no “home” in your estate plan, and will have to be put somewhere else–in another trust, or in a will.

Call the Torrance probate will and estate attorneys at Samuel Ford Law today for help with any kind of trust you may need in your estate plan.

Sources:

actec.org/resource-center/video/can-i-change-my-irrevocable-trust/

smartasset.com/estate-planning/tax-consequences-of-terminating-an-irrevocable-trust