A primary feature of the revocable living trust is that it
can be amended, restated or revoked entirely by its settlor(s) at any
time. Thus the living trust can change
with circumstances. So when does it make
sense to amend, restate or revoke a trust and start over? Let us examine these alternatives.
A trust is amended when the settlor wishes to make revisions
to particular terms within a trust. Each
amendment is an overlay to each preceding one and to the original trust
itself. Naturally the more numerous amendments
the more cumbersome reading and understanding the trust becomes. Reasons to amend a trust include changing who
becomes successor trustee or the distribution scheme.
Sometimes entirely restating the trust is desirable. A restatement is an amendment that completely
rewrites the whole trust. It preserves
the trust’s existence but with entirely new terms. A restatement is desirable when a trust might
have numerous inadequacies that require substantial corrections. Also, amending a trust with many prior
overlapping amendments may require a restatement.
An advantage of the restatement is that trust assets do not
have to be retitled in the name of a new trust.
When many trust assets are involved a restatement can save time and
money. But sometimes it is necessary to revoke a trust and to transfer the assets into a
new trust. Let us now see why.
Four reasons come to mind why a settlor might want a new
trust rather than a restatement. First,
the settlor may not wish for the trust beneficiaries to receive copies of the prior
amendments to the trust. As a matter of
law, when a settlor dies, the beneficiaries and heirs of the deceased settlor
are all entitled to a copy of the original trust together with all amendments. This may be disagreeable to any settlor who
prefers to keep the earlier amendments secret.
Second, the settlor may not wish to leave open the
possibility that the most recent amendment (which might even be a complete
restatement) could be destroyed by a dissatisfied beneficiary. That is, someone might wish to discard the
most current amendment in order to proceed under an earlier version of the
trust. Titling assets over into a new
trust with a new name and creation date cuts-off that possibility.
Third, with a joint trust (i.e., one settled by a married
couple) the surviving spouse might decide to transfer her share into a new
trust in the survivor’s name alone.
Although the surviving spouse can typically use a power of appointment
to change who inherits what assets, the surviving spouse may or may not be able
to make amendments to the provisions of the trust after the first spouse
dies. In the case of a blended family,
the surviving spouse may wish to remove her assets from a joint trust into a
new trust for the benefit of her own children to the exclusion of the step
children.
Fourth, when the community property and separate property
rights of one spouse in a joint trust assets are transmuted (changed) into the
other spouse’s sole and separate property the trust is terminated and assets
transferred into a single settlor trust.
This happens when assets are transferred between spouses in order to
allow one spouse to qualify to receive Medi-Cal at a skilled nursing
facility. Amending or restating the
original joint trust in that case is not a solution.
As discussed, the revocable living trust is flexible. Options to amend, restate or revoke are
available. Reviewing one’s estate plan
every five years, sometimes sooner if circumstances necessitate, with a
qualified attorney is generally advisable.
“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”