Just by its name, it would seem that an irrevocable trust cannot be modified. However, the law does allow various ways that the terms of an irrevocable can be adjusted. Changes in laws, family, trustees, and finances can frustrate the trustmaker’s original intent in creating the trust. Or, sometimes, an error in the trust document is identified. There are times when it is wise to consider changing a trust, even if that trust is irrevocable.

Here are three examples of when an irrevocable trust can, and should, be modified or terminated:

1. Changing tax law. Ben created an irrevocable trust in 1980 that held a life insurance policy. Due to the low federal estate tax exemption at that time, Ben needed a tool that would remove the value of the insurance proceeds from his estate at his death. An irrevocable life insurance trust was created to own the life insurance policy and be the beneficiary of the proceeds at Ben’s death. Today, the federal estate tax exemption has significantly increased and Ben no longer needs to worry about removing the life insurance proceeds from his estate to avoid estate taxation at his death.
2. Changing family circumstances. Carol created an irrevocable trust for her grandchild, Christine. Now an adult, Christine has a disability and would benefit from government assistance. According to the current trust instructions for how money is to be given to Christine, Carol’s trust would unintentionally disqualify Christine from receiving much-needed government assistance.
3. Discovering errors. Frank Sr. created an irrevocable trust to provide for his numerous children and grandchildren. However, after the trust was created, his son (Frank Jr.) discovered that his son (Frank III) had been mistakenly omitted from the document.

Are you sure your trust is still working for you?
If you are not sure whether an irrevocable trust is still a good fit or if you wonder whether you can benefit more from your trust, we are happy to meet with you so we can analyze your current trust. Modifying or terminating your irrevocable trust may be a good option. Making that determination simply requires a conversation about your goals and a review of the trust itself. Please schedule time with us to review your current trust or discuss the potential benefits that a trust can provide to address your unique situation and goals.