Petitioning to Modify a Trust

Estate Planning Attorneys Advising Sacramento Residents

For many people, irrevocable trusts are a necessary part of their estate planning. They make permanent transfers over which they can continue to exert control, and using an irrevocable trust helps them save taxes. However, they have fixed terms, and this may be problematic as lives fluctuate and change over the years. If you need assistance with petitioning to modify a trust, there are several procedures under which you may do so. Sacramento estate planning lawyer Travis G. Black can provide knowledgeable representation and guide you through this process.

Petitioning to Modify a Trust

When considering a modification to a trust, you will need to consider tax consequences. If there is a change in a beneficiary's rights, there may be changes to taxation. You will need to also consider whether the IRS will give effect to the change. In some cases, you may amend a trust under California law, but the IRS may not honor it. The Internal Revenue Code authorizes certain amendments. However, the IRS is not required to honor every trust modification, even those made through a Probate Court's order.

There are several situations in which statutes provide an opportunity to modify or terminate an irrevocable trust. Some situations in which modification may be necessary include when you want to divide one trust to separate assets that are exempt from generation-skipping transfer tax from assets that are not exempt, when you want an individual trustee in a trust that requires a corporate trustee, when you want to authorize a trustee to engage in transactions that the trust agreement does not authorize, or when you want a beneficiary to serve as a sole trustee when the trust instrument does not allow it.

Under Probate Code §§ 15400-15414, there are several different ways to amend a trust, while Probate Code §§ 17200-17211 provides for a procedure for petitioning to modify a trust when court approval is necessary. When the settlor (the person who made the trust) and all of the beneficiaries agree, they may compel a modification of the trust. In such cases, it is not necessary to petition the court, and the spendthrift clause does not stop modification or termination.

Under section 15403, if the beneficiaries of an irrevocable trust all agree, they may compel the modification or termination of the trust by petitioning the court. Sometimes a guardian ad litem must be appointed because one or more beneficiaries are minors or unborn. The guardian ad litem may be able to rely on a general family benefit to living members of the family in order to approve the modification or termination of a trust. However, if there is a spendthrift clause in the trust, it may not be terminated under this section.

The petitioner will need to show a good reason to modify the trust. When considering a petition under this code section, the court will need to determine whether continuing the trust as it has been drafted is necessary to further a material purpose of the trust. The court also needs to decide whether the reason given for changing the trust outweighs the interest in furthering the material purpose. When the answer is yes, it may allow a trust modification.

Sometimes the settlor and only some beneficiaries agree to the modification. Probate Code § 15404 provides that a petition to the court for an order modifying or partially terminating a trust may be granted if the petitioners can show that the interests of the beneficiaries who did not consent are not substantially impaired.

Under Probate Code § 15409, either a trustee or a beneficiary may petition to get administrative provisions modified or to terminate the trust. They must show that circumstances unknown to the settlor and not anticipated will defeat or substantially impair the trust's purpose. When considering a petition brought under this section, the court may modify the trust terms to include language that was forbidden under the original terms. A spendthrift clause in a petition under this section is just one of several factors for consideration.

Discuss Your Estate Planning Needs with a Sacramento Lawyer

There are many reasons why a trustee or a beneficiary of a trust would want to modify it, and there are several different ways to go about making a modification. If you are interested in petitioning to modify a trust, you should consult our Sacramento firm. We provide skillful legal representation to clients from our Folsom office. To obtain a free consultation with a trusts attorney, call Travis G. Black & Associates at 916-962-2896 or contact us online.