When there are issues with the terms of a trust

| Aug 19, 2019 | estate planning | 0 comments

If a trust is irrevocable, no one can change it. Right? But what if the terms of the trust are obsolete now, and the trust does not serve the purpose the grantor originally intended? Modifying a trust is not impossible, but it does require the consent of all the beneficiaries and a legal process that can be complex, time-consuming and expensive.

Fortunately, in California, the Uniform Trust Decanting Act allows the trustee to correct the issues of the original trust more easily.

Creation of a new trust

With the decanting power, the trustee can create a new trust and transfer the assets to it from the original deficient or obsolete trust. So, for example, if the original trust has investment limitations that no longer serve the beneficiaries, the trustee may decant to gain the authority to invest more broadly.

Protection of beneficiaries’ rights

Although the trustee does not have to gain the consent of the beneficiaries, he or she cannot make any changes without providing everyone involved a chance to contest them. Before taking any action, the trustee has to notify:

  • The settlor(s) of the original trust, if still living
  • Each beneficiary (or guardian ad litem, guardian or attorney-in-fact, if a beneficiary is a minor or incapacitated)
  • Every person who has a currently exercisable power of appointment over the original trust
  • Every fiduciary of the first trust and the second trust
  • Every person who has the right to replace or remove the authorized fiduciary

Under some circumstances, the trustee may also need to notify the Attorney General. The notice provides each of the above with 60 days to contest the decanting action in court.

Limitations to changes

The trustee cannot decant the trust to give himself or herself more compensation unless the court approves the increase and all the beneficiaries of the new trust provide signed consent. However, if the new trust will last longer than the original or if it has more value than the original, a raise in compensation may be incidental to the changes and may not need approval.