Yes, even Irrevocable Trusts can be changed. You are not stuck with antiquated language that no longer serves the family’s best interests. There are steps you can take to make things better and we are here to help.
Are you the beneficiary or trustee of a Trust that was established a long time ago by a deceased family member? Does the Trust document lack the necessary language to invest or distribute assets appropriately under today’s circumstances? Do you want to get more money from the Trust than the document presently allows? Is the Trust inefficient for income and estate tax purposes? Does the Trust fail to properly address your present family needs?
Know this, you do not have to be stuck with the Trust terms that might have been established by a parent, grandparent or great-grandparent. There are legal steps to either reform or terminate a Trust document that will serve to enhance the benefits the Trust can provide or perhapsclose the Trust if that is the desired result.
Path Of Least Resistance: First, determine if the Trust document provides someone the power or authority to modify the terms of the document. We try to build flexibility into our documents so that future generations have the ability to properly deal with the issues confronting them. We do not want them to be stuck using the terms of today to deal with the problems of tomorrow. Here are three of the provisions that we might include in our documents that you might want to look for under the Trust you are dealing with:
- a simple power granted to a Trustee to revise Trust terms.
- a Trust Protector appointed who has been given the authority to take care of the reformation of the Trust. The Trust Protector is a person or entity, other than the Trustee, who has been named under the document to oversee the actions of the Trustee, remove and replace a Trustee, fix a “broken Trust”, fill Trust vacancies and revise trust terms.
- a Decanting Provision allowing the Trustee or some other person to actually create a new trust, with new adapted terms into which the assets from the old trust are added.
Even when these provisions exist, it is still very important to have legal assistance when carrying them out. You must consider how a change to the present Trust will impact each of the present and future beneficiaries. You should then consider preparing a family settlement agreement whereby the proposed change is described. The family settlement agreement should be reviewed and signed by all of the impacted present and future beneficiaries. This will make clear that the effected parties where in agreement with the steps that are taken and also reduce any liability risks that might exist. The Trustee or Trust Protector should make sure not to open himself or herself up to personal liability by taking action without everyone being on board.
As we all know, things are not always as easy as we would like them to be. If the obvious provisions described above are not in the Trust document, it does not mean that nothing can be done. It just means that additional steps might be necessary to make the desired changes to the Trust. Absent overt reformation provisions, our next step usually involves petitioning the Orphans’ Court to request the reformation or termination of the Trust. The Orphans’ Court (the “Court”) is the section of the Court of Common Pleas in each Pennsylvania County that oversees issues related to Estates, Trusts, Powers of Attorney and other fiduciary matters.
Court Petition Process: By presenting a good and logical case to the Court, it is possible to obtain permission to modify or terminate a Trust even if the power to do so was not set out under the document. The argument for why the Court should allow a Trust reformation will be set out under a Court Petition prepared by legal counsel. This should be done by an attorney who has experience in Orphans’ Court matters. Again, it is best for all of the interested parties to be presented with a copy of the Petition in advance of filing. The interested parties would include the Trustee, present and future beneficiaries or legal guardians for beneficiaries. Whenever possible, the interested parties should sign an affidavit stating their agreement with the proposed change to the Trust provisions. The affidavits of all interested parties should be attached to the Petition so that the Judge will know that everyone involved agrees and does not feel that they will be materially harmed. This approach goes a long way toward paving a path for the Judge to sign off on the Trust reformation.
If the interested parties are not all in agreement, the process is likely to more complicated and time consuming. That being said, if there is an overwhelming reason to change the terms of the Trust, it is still worthwhile to Petition the Court to demonstrate the harm that will result from keeping the present structure. There may be a need to have a Court Hearing where all of the interested parties have the right to appear and give their side of the story, but the Judge will still be left to decide the best approach given the facts of the case.
Conclusion: The most important take away from this article is that “Irrevocable” does not mean the trust cannot be changed or even terminated. There are various ways to facilitate change of an Irrevocable Trust as discussed above. So, if you are party to an “old trust” that is failing in some way, consult with an experienced Orphans’ Court attorney to review the Trust document and discuss the best approach for making a needed change. There is no sense in being stuck with a Trust when you can take the initiative to mold it into the form that is more advantageous to those involved.
How To Get In Touch: For assistance reforming or terminating a Trust or other Orphans’ Court matters such as estate and trust disputes in Pennsylvania, please contact Douglas L. Kaune, Esquire at (610) 933-8069 or email him at dkaune@utbf.com. Doug and the rest of the Orphans’ Court Litigation team is available to assist you. Unruh, Turner, Burke & Frees, P.C. is a full service law firm which has three convenient office locations in Phoenixville, West Chester and Paoli, Pennsylvania. The firm primarily services clients in Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties, but can represent clients throughout Pennsylvania.
