Sometimes the term “revocable living trust” seems like a misnomer. Your revocable living trust will not stay revocable forever. A revocable trust can become irrevocable but never the other way around. So when does this typically occur?
A revocable living trust becomes irrevocable once the sole grantor or dies or becomes mentally incapacitated. If you have a joint trust for you and your spouse, then a portion of the joint trust can become irrevocable when the first spouse dies and will become irrevocable when the last spouse dies.
If you recently lost a loved one and are wondering whether it is too late to amend or change their trust, here are some helpful guidelines to help you.
Why Does a Revocable Trust Turn Irrevocable Once the Grantor Dies?
A living trust is a legal binding document that protects a grantor/settlor’s assets beyond the grave. It is also known as an Inter Vivos Trust that is usually set up while the grantor is alive and of sound mind. Inter Vivos trusts mainly exist in two forms; Revocable Living Trusts and Irrevocable Trusts.
Revocable living trusts are those whose provisions can be amended, modified, or revoked according to the terms of the trust. On the other hand, Irrevocable trusts are those that cannot be changed even by the grantor once they are formed and funded.
Every revocable trust becomes irrevocable when the creators of the trust died. But that is not such a bad thing!
Benefits of Your Trust Becoming Irrevocable
Believe it or not, the complexity of the binding terms within an irrevocable trust makes it a better option that a revocable trust and here’s why:
- Revocable trusts are one of the most attractive options for people who want to maintain control over their estate while alive, but also protect it after they die.
For example, a revocable living trust will help you avoid probate, which is an excellent thing for anyone who owns a home to real property.
- If your estate is over $11,000,000 (the 2020 estate exemption is currently $11,580,000), then a revocable living trust provides tax benefits. Additionally, a revocable living trust can give you protection in the event the estate tax laws change.
- If you have minor children, a revocable trust that becomes irrevocable on your death can significantly help them.
- First, it can limit the amount of money your minor children receive from your estate until a specified age.
- Second, it can protect your children from themselves. Sometimes kids get money before they are responsible enough to handle it. When this happens, it is easy for your kids to develop substance abuse issues and other problems. When your revocable trust becomes irrevocable, it not only prevents your children from getting a lot of money too soon, but it can also protect them from creditors.
- An irrevocable trust can help secure government benefits such as social security and nursing home care.
- They are also an excellent way of removing appreciable assets from your estate. They way the tax laws currently work, you can design your revocable living trust to hold appreciating assets in a special irrevocable trust upon your death, which will allow that asset to appreciate tax-free.
- Finally, when your revocable trust becomes irrevocable, it can protect your estate from undue influence.
For example, if you are married, when you die, your portion of the trust can become irrevocable. The benefit to this is protection from undue influence exerted over your surviving spouse. If your surviving spouse gets remarried or taken advantage of by a friend or trusted helper (like a nurse), then your portion of the estate is preserved and protected.
What Happens If the Grantor Dies But Did Not Name Any Successor Trustees?
While a grantor is still alive, he/she has the power to name the beneficiaries and trustees of the trust. Typically, a grantor will name him/herself as an initial trustee. He or she will then name a successor trustee. Once the trust becomes irrevocable, the grantor and beneficiaries cannot amend or modify the trust.
Sometimes a grantor outlives his or her trustees, or forgets to name a successor. When this happens, then all is not lost.
Beneficiaries sometimes have to power to appoint a successor trustee. Look at the language of the trust dealing with trustees and see if it allows the beneficiaries to name a trustee.
If it does not, then you may have to petition a court to have a trustee appointed.
Is It Possible to Change a Trust After the Grantor’s Death?
Once a grantor dies, his or her trust instrument is basically written in stone. Once he/she passes, there are only two ways to modify or amend the terms of a trust:
- With the unanimous written consent of the beneficiaries.
- With court permission.
However, in most cases, the court is limited to modifying the terms of a trust to fully express a grantor’s intention. For example, if the grantor wanted all of his or her kids to inherit the estate. But forgot to name one, then a court can amend the trust to include the omitted child. By contrast, if the grantor wanted to disinherit a child, then a court will not modify the trust to include the disinherited child because the grantor clearly wanted that child excluded.
There are other circumstances where a court may amend a trust.
Circumstances Where a Court is Likely to Modify the Terms of an Irrevocable Trust
- Unforeseen variables not included in the trust instrument.
If a trust is too hard to figure out, or if it omits essential information that prevents the trustees from adequately administering the trust, then a judge can modify the terms to clarify the trust or provide instruction to the trustee
- Lawsuits that prove undue influence on the beneficiaries
As I have already mentioned, cases of undue influence may cause the grantor to change the trust while they are alive. As a result, a petitioner who can prove that changes to a trust were the product of undue influence can persuade a judge to void the changes and modify the terms of the trust.
- Practicality of trust.
If the trust becomes impractical after a grantor dies; then, a judge can modify the existing terms to make it work or can terminate it altogether.
Is it Possible for a Beneficiary to Become a Successor Trustee?
A trustee is usually the person appointed to manage the trust assets when the grantor dies or becomes incapacitated. Beneficiaries are the individuals with the right to receive distributions from the grantor’s assets. It is common for a grantor to name his or her children as a successor trustee of a revocable trust.
But, it is uncommon and not recommended to name a beneficiary of an irrevocable trust used for asset protection or specialized tax planning.
But in most cases, it is perfectly fine.
A living revocable trust can turn irrevocable under a special set of circumstances. When the grantor dies or becomes incapacitated, then the trust becomes irrevocable – sealed off from any further amendments. Similarly, when one of the grantors of a joint trust dies or becomes incapacitated, then a portion of the trust can become fully or partly irrevocable.