Can a Trust be Amended?

The answer to this question depends on the type of trust at issue and the reason for the amendment.

A Revocable Trust

A revocable trust (sometimes referred to as a living trust) can generally be amended or cancelled by the settlor. It’s the nature of that kind of trust – it can be revoked.

To amend or revoke a revocable trust, the best course of action is to follow the procedure set forth in the trust document. To amend (ie change) the trust, the typical procedure is for the settlor to sign an “Amendment to X Trust” stating the change to the trust and delivering that signed writing to the trustee. To revoke (ie cancel) the trust, the typical procedure is for the settlor to deliver a signed document to the trustee, expressly revoking the trust.

If the trust is silent on the procedure to follow, then the Probate Code provides that amendments and revocations can be done by delivering a writing, signed by the settlor, to the trustee during the settlor’s life.

An Irrevocable Trust

An irrevocable trust is just that: absent certain circumstances, it cannot be changed.

As mentioned, however, there are certain circumstances under which an irrevocable trust may be modified or terminated, some of which require court permission.

An irrevocable trust may be modified or terminated if the settlor and all beneficiaries consent. The biggest hurdle with this method is that all beneficiaries must consent. That includes current beneficiaries and remainder beneficiaries, including minors, unborn, and unascertained beneficiaries. Typically, the consent of minor, unborn, or unascertained beneficiaries can be given by a guardian ad litem who represents those beneficiaries.

When the settlor cannot give consent, an irrevocable trust may be modified or terminated by petition to the court with the consent of all beneficiaries. The same complexities with respect to obtaining the consent of all beneficiaries remain. Also, the beneficiaries must give a good reason for the modification or termination, beyond the mere convenience of the beneficiaries. If the trust has a spendthrift clause or similar restraint on a beneficiary’s interest, it generally cannot be terminated. Additionally, the court must determine if continuance of the trust is necessary to carry out a material purpose of the trust. If so, it won’t be modified or terminated unless the court determines that the reason for doing so outweighs the interest in accomplishing a material purpose of the trust.

A trustee can terminate a trust if the principal of the trust is $40,000 or less. If the principal of the trust is greater than $40,000, then a trustee or beneficiary may petition the court to modify or terminate the trust by showing that the fair market value of the assets of the trust are so low in relation to the cost of administration that it is impractical to continue the trust.

Finally, a trustee or beneficiary may petition the court to modify or terminate the trust where there are changed circumstances not known or anticipated by the settlor. The change in circumstances must result in a situation where continuation of the trust under its terms would defeat or substantially impair the ability to accomplish a purpose of the trust. Examples include changes in tax laws, where the terms of the trust are outdated or too restrictive, or, for charitable trusts, the charity merges with another.

Before taking action to modify or terminate a trust, it is highly recommended that you consult with an attorney to discuss the entire estate plan and circumstances to ensure that the proposed action will not have unintended negative consequences, such as tax ramifications or potentially triggering a no contest clause.