The question of whether an irrevocable trust can be changed or revoked comes up fairly often in estate planning. Sometimes circumstances change, and a trust that may have made sense at the time it was created no longer appears to be in the best interests of the beneficiaries.
A trust can be either revocable or irrevocable, says nj.com’s article, “Can an irrevocable trust be revoked?” Therefore, it is important to first determine with certainty whether the trust in question is revocable, or is in fact irrecoverable by its own terms.
In California, according to Probate Code Section 15400, unless a trust is expressly made irrevocable by the language of the trust document, the trust is revocable by the person who created it. The opposite applies in some other states.
A revocable trust is a living trust that’s created with a written agreement between the person creating the trust (also called the settlor or the grantor) and the trustee. The trustee is the person (and it’s usually the settlor) who is responsible for managing the assets in the trust. The living trust document often says that the trust can be changed or revoked by the settlor. That’s why it’s called a revocable trust.
However, with an irrevocable trust, the settlor doesn’t reserve the right to revoke the trust. In effect, once the assets of an irrevocable trust are re-titled and placed in the trust, they belong to the trust beneficiaries, not the settlor. Nonetheless, an irrevocable trust can still be changed or revoked in some states. The laws of each state vary in this area.
In California, if all beneficiaries of the trust consent, an irrevocable trust may be modified or terminated by the probate court, provided that the termination isn’t inconsistent with a material purpose of the trust. Likewise, the California Probate Code grants courts the authority to modify or terminate an irrevocable trust “if the court determines that the fair market value of the principal of a trust has become so low in relation to the cost of administration that continuation of the trust under its existing terms will defeat or substantially impair the accomplishment of its purposes.” Furthermore, due to fairly recent law changes, you can even modify or terminate an irrevocable trust in California without probate court involvement if the settlor and all of the beneficiaries of the trust consent in writing.
Speak with an experienced estate planning attorney if you have questions about whether a particular irrevocable trust can be changed or revoked. It is important to go about the process of getting and documenting consents properly, and the proper handling and distribution of trust property following the termination of an irrevocable trust is very important.
Reference: nj.com (March 25, 2019) “Can an irrevocable trust be revoked?”