Some Advice on Trusts

Advice_on_Trusts

Sometimes our office receives a call with a question like “I need an irrevocable trust. Can you do that?”  My immediate response is “why do you believe you need an irrevocable trust?”  The reason might be the caller heard or read that irrevocable trusts can shelter residences for Medicaid purposes or avoid creditors or protect assets from law suits.  What really is needed is a solution to a problem.  I compare the question to calling a physician’s office and saying “I need an appendectomy.  Can you do that?”  The complaint might be pain in the side and the questioner might have read on WebMD that the likely cause is appendicitis.  A trust is one tool in a toolbox.  The real question is how do I arrive at a given result.   One of the services our office performs is walking clients through alternatives so they can make informed decisions to arrive at their desired result.  They might consider an irrevocable trust or have available to them some other Medicaid planning tool such as a Medicaid exemption.  They might establish a spendthrift trust in a Will to protect assets or a revocable living trust.

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.  Can a revocable trust become irrevocable?  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?

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.  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.

Revocable trusts can be modified at any time during the lifetime of the maker.

However, 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 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 noncharitable 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.

follow me on:

Leave a Comment: