A trust can minimize probate expenses and ensure your relatives get your property immediately upon your death. In some situations, trusts can reduce estate taxes. But some people worry that if they create a trust, they cannot change their mind and modify or cancel it later.
You are never locked into a trust, though there are legal requirements you must meet before you can change one. Before you decide whether to include a trust in your estate plan, speak with a local attorney about trust modification and termination in Manhattan.
Understanding Living Trusts
A living trust is a container for property that a person, called the grantor or settlor, creates before they die. The trust has one or more beneficiaries who receive the property, or the income it generates, when the grantor dies. The settlor can name themselves as a trustee, but usually, an estate planning attorney would suggest also naming a co-trustee or successor trustee who could manage the property if the settlor becomes incapacitated.
The settlor transfers ownership of the property into the name of the trust but, in some cases, can retain control of the property while they are alive and have the capacity to manage their affairs. The benefit of putting property into a trust is that a trust does not go through the probate process, the property in the trust does not count toward the value of the settlor’s estate, and the beneficiaries receive the property in the trust immediately upon the settlor’s death, in most cases.
Trusts can shield assets from creditors, help an infirm person qualify for Medicaid long-term benefits, and keep family property within the family. Different types of trusts serve different purposes, and our attorneys could advise about the best trust to meet a settlor’s needs. Our Manhattan team could also help families who already have a trust in place modify or terminate the trust when necessary.
Modifying a Trust
A settlor might choose two types of trusts—a revocable living trust and an irrevocable living trust. Changing a revocable living trust requires only that the settlor change the trust documents and provide the trustee with a copy. A Manhattan attorney should review any changes to ensure the modified trust document complies with all legal requirements and is enforceable.
Modifying an irrevocable trust is somewhat more complicated, but it can be done. Kansas Revised Statutes § 58a-411 allows the modification of an irrevocable trust if the settlor and the beneficiaries all agree to the change. If the trust’s settlor has become incapacitated, the person who holds the settlor’s power of attorney, the settlor’s conservator, or the settlor’s guardian may give consent with a court’s approval.
If all the beneficiaries do not approve of the change, those seeking the change must ask a court to modify the trust. A court could approve changes if the modification does not prejudice the rights of the beneficiary who did not consent to the change. A court also could modify a trust if necessary to adapt to changes the settlor did not anticipate when forming the trust, to meet the settlor’s tax objectives, or to rectify a clear mistake of fact or law.
Terminating a Trust
When a settlor makes a revocable trust, they can change their mind and terminate it at any time. Many trust documents spell out how the settlor can terminate it, but if the trust does not specify a method, the settlor should consult a Manhattan trusts and estates attorney for advice. Once the settlor terminates a trust, they must be sure to transfer the ownership of the property that funded it.
It is also possible to terminate an irrevocable trust. If the settlor and all beneficiaries agree, they can terminate the trust by consent. A court could terminate a trust even without all the parties’ consent if the rights of any non-consenting beneficiaries are protected. Other reasons why a court might approve the termination of a trust include:
- The trust has accomplished its purpose
- Termination of the trust is necessary to accomplish the settlor’s purposes
- The purpose of the trust has become illegal, impossible, or against public policy
- The value of the remaining assets in the trust does not justify the costs of trust administration
When a trust is terminated, any remaining assets must be distributed to the beneficiaries, and the distribution method must reflect the settlor’s intentions for the trust.
Consult a Manhattan Attorney About Modifying or Terminating a Trust
Knowing how to modify or terminate your estate plan if necessary is essential when your estate plan includes a trust. If you are the beneficiary of a trust, you must know how the trust might affect you. Working with an experienced trusts and estates lawyer could help you understand your rights.
If you have questions about trust modification and termination in Manhattan, speak with an experienced professional with estate planning expertise. Schedule a consultation today.