Knowing Trusts – What You Can and Cannot Do
From time to time our office receives requests to establish a trust. This might be
discussed during an appointment or a caller might simply call the office and say he needs
a trust without further information. The caller might have read somewhere about the
difficulty of probate or his/her financial advisor might have recommended a trust to
perform a specific purpose. Often the person who requests the information may be
unaware why a trust might be needed or what type of trust. One of the services our office
performs is to walk clients through alternatives so they can make informed decisions
whether to remain with a traditional Will or move to trust based planning.
Trusts may be irrevocable or revocable. They might be so-called grantor trusts or
non-grantor trusts. They might be established only to provide more detailed instructions
than might be contained in a typical Will although Wills can be tailored to the
circumstances. They might be needed to deal with special needs or a beneficiary with
substance abuse problems or serious difficulties with creditors. They might take effect
during lifetime or only on death and be contained in a Will, a so-called testamentary trust.
One of the questions that arises during discussions is whether a trust, once
established, can be changed. As with most legal questions, the answer is “it depends.”
Suppose the person who established the Trust has died. Many trusts become irrevocable
on death of the Trustor for the simple reason she cannot modify it after she died. But
what if all the beneficiaries agree the Trust should be changed? This is where specific
laws become involved.
If the person who established the trust is still living and all the beneficiaries
agree, many trusts can be changed without a Court proceeding being involved. If the
Trustor, the person who established the trust is deceased, there is still a way to modify a
trust in many cases, even a so-called irrevocable trust.
The Uniform Trust Act which, in its Pennsylvania version was adopted in 2006
allows more flexibility when it comes to trusts than the laws previously allowed and it
states specifically the procedure to follow in certain circumstances. Now, even
irrevocable trusts might under some circumstances, be modified, reconfigured or even
dissolved. Some actions might require a Court proceeding and some not. This is a good
thing because often conditions change over time. If the maker of the Trust could have
known everything that would come later, he or she might not have included the offending
provisions.
The question for most people is why might they care about the Uniform Trust
Act? Here are some examples.
You might be the beneficiary of a trust established long ago by a grandparent that
has very restrictive provisions on distributions or the administrator of your trust could be
a financial institution that has changed hands many times or is located in another state
and is unresponsive or you disagree with investment decisions and you and other
beneficiaries want to retain another Trustee. There are now specific rules that provide a
road map how to do this.
If the Grantor, the person who established the Trust, is still living, many
provisions of a Trust may be changed by written agreement of the Grantor and all the
living beneficiaries without going to Court.
The Trust might specify certain types of investments and the instructions could be
outdated. The Trust might no longer be needed because of changing conditions or there
might not be enough in the Trust to make its administration worthwhile. Again there are
provisions in the Act to cover these possibilities.
The Trust may have been drafted in such a way that, with changes in the law, it
can no longer accomplish its goals. The law states that a court may modify the
administrative or dispositive provisions of a non-charitable irrevocable trust, make an
allowance from trust principal or terminate the trust if because of circumstances that
apparently were not anticipated , trust purposes would be furthered by making the
change. Section 7740.2, UTC Section 412.
Under the Uniform Trust Act, notices to beneficiaries and agreement among the
parties may save time in Court in some cases and provide more flexibility to beneficiaries
and their families.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.