In this episode, Tim explains irrevocable trusts and a potential workaround.
Podcast Transcription:
WRVO Producer Mark Lavonier:
This podcast is part of the series Estate Planning Pro Tips, hosted by attorney Tim Crisafulli of Crisafulli Estate Planning and Elder Law P.C., an estate planning, probate and elder law firm serving clients throughout central New York. A former school teacher, Tim explains complex legal subjects in an easy-to-understand way. The commentaries focus on the central aspects of estate planning, such as wills, trusts, asset protection, long-term care, and probate. And now here's Tim.
Tim Crisafulli:
Is an irrevocable trust really irrevocable? In a word, no.
Irrevocable can be a scary word. It suggests that no changes can ever be made, that nothing can ever come back out of a trust, and that control is forever lost. However, there is often more flexibility than the word irrevocable suggests. Many irrevocable trusts reserve for the grantor, that's the person who established the trust, a power of appointment. Where included, a power of appointment can allow the grantor to change beneficiaries and update other components of the trust.
Some irrevocable trusts include a trust protector. The person in that role might also be authorized to make changes to the document.
Many irrevocable trusts allow for distributions of income and principal to be made, if not to the grantor who created the trust, then at least to someone. Once the assets are distributed to that beneficiary, the beneficiary is free to do nearly anything with that distribution, including give it back to the grantor.
Irrevocable trusts can also be decanted. This is a legal mechanism where a new trust, one with more favorable terms, is created. The contents of the old trust are poured over into the new trust, and then the terms of the new trust control. Courts are also able to modify or reform irrevocable trusts. But using that approach often involves costly, drawn-out legal proceedings.
Perhaps the ultimate workaround comes from New York Estates, Powers and Trusts Law, section 7-1.9. If the settlor who created the trust and all beneficiaries consent, they may revoke an irrevocable trust. While not all of these sources are available for every single irrevocable trust, most are more flexible than the word irrevocable suggests.
