Whether, When and How the Trust Creator Can Revoke an Irrevocable Trust
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A living trust is an excellent way to manage your money and help protect your family and your wealth, both now and in the future. Unlike a will, which goes into effect only upon your death, you can manage a living trust during your lifetime. Many people choose to file living trusts instead of a will because it allows them to handle details such as beneficiaries, property disbursement, transfer of assets to family members, and inclusion or removal of certain pieces of property while they are still alive. If you create an irrevocable trust you may benefit from tax advantages, but will have a hard time making changes to the living trust should you rethink your estate plan.
Types of Living Trusts
There are many different ways to create a trust. One primary concern is whether or not the trustor wants the trust to be revocable or irrevocable. The vast majority of people choose to set up a revocable living trust for expressly the reasons listed above: having a revocable trust while while they are alive offers the flexibility to change it or revoke it. Irrevocable living trusts are fairly uncommon and are usually selected for very specific circumstances. While irrevocable trusts can provide some excellent tax benefits and other advantages, the majority of people avoid them due to the simple fact that they don’t have nearly the same flexibility as revocable trusts.
Revoking an Irrevocable Trust
If you have filed an irrevocable trust and you find yourself in the position of having to revoke it, it is possible to do so. Perhaps you made the mistake of setting up an irrevocable trust under bad financial advice, or because you didn’t foresee a significant change in your circumstances that makes the trust no longer appropriate. Whatever your reasoning, revoking an irrevocable trust is a matter of finding a legal loophole to prove the validity of your position. It’s recommended that you proceed with the advice of an experienced estate planning attorney as you examine the possible methods.
Methods of Revoking an Irrevocable Trust
- Obtain Consent: In the majority of US states, a person is allowed to change or revoke an irrevocable trust by obtaining consent from every person involved with the trust, specifically, those who are listed as beneficiaries in it, as well as the trustee. This type of change requires a court hearing, at which you will be asked to prove your reasoning for the change, as well as provide the proof of consent from each person. Your reasoning must show that the change makes sense, has a purpose, and is not in detriment to any of those involved. Any minor children listed in the trust will need to give permission through a parent or legal guardian. Keep in mind that details as to how to do this vary by state, so consult with an attorney prior to taking action.
- Make a Replacement Trust: This method can get complicated, and can subject you to fines and taxes if you’re not careful. Don’t attempt to do this without the help of a financial advisor or estate planning attorney. In order to make a legal replacement trust, you’re required to set up a new living trust separate from the existing one. At that time, you set about transferring the assets from the old trust into the new one, either by listing them in the new trust, or by selling them from trust to trust. This is a complex financial procedure. Some types of assets may fall under taxation if sold in this manner while other maneuvers can subject you to lawsuits. The end result, however, if done properly, is that the old trust is emptied of its assets and thus frozen, and the new one becomes the relevant and applicable trust by which your assets are handled.
Getting Legal Help
Because of the complexity of revoking an irrevocable living trust, the advice of an attorney is invaluable. Contact an experienced lawyer who specializes in trust and estates before making any attempt to revoke a living trust so you don't damage the value of the very assets you were trying to protect by creating the trust in the first place.