When you create a revocable trust, you reserve the right to amend your trust during your lifetime, giving you the flexibility to change your estate plan as your circumstances evolve. But special care must be taken when changing your revocable trust. If you make handwritten changes to your revocable trust or attempt to amend your trust without the guidance of legal counsel, you risk your changes not being valid. In addition, handwritten changes or informal amendments to your revocable trust can confuse trustees and beneficiaries and, in the worst case, subject your estate to allegations of fraud.
A Revocable trust: is established during the life of the grantor who is often the initial trustee and beneficiary. The grantor can revoke the trust at any time and the trust will have specific provisions for amendment to adjust to the needs of the grantor and beneficiaries.
Irrevocable trust: Generally, an irrevocable trust cannot be reformed or amended by anyone, even the grantor once executed. They are often created as testamentary trusts under a decedent’s will or because revocable trusts automatically become irrevocable upon death. So, whatever the trust is at the time of death remains that way.
A recent case in Michigan (Beaumont v. Parness (In re Storto), which has similar laws to Maryland, DC, and Virginia regarding trust amendments, highlighted the problems that can arise when grantors try to amend their trust independently. There, the grantor had written various memos throughout his life, indicating to whom he wanted to receive certain items of property. After his death, there was a dispute among his family over these memos. The trustee claimed to have never received one memo that another family member said existed. The trustee also claimed that the memos needed confirmed amendments to the trust. The court ultimately determined that the memos were valid amendments to the trust because the trust provided for a relatively informal process of amending it.
If, in the case above, the grantor intended for his memos to amend his trust, he likely intended for something other than a debate among his family and the court about how his property should be distributed. If he did not intend for his memos to govern, or if they were made under exercising undue influence, the informal process for amendments in his trust allowed for a result contrary to his intentions. Informal notes and memos allow people to misunderstand, tamper with, "misplace," or contest them. They also may become outdated or conflict with one another, confusing the grantor’s intent.
Even the best-laid plans cannot foresee the future and possible major changes needed for a trust. In Maryland, legislation under Maryland’s Uniform Trust Act was passed that allows for the reformation or mediation of a trust in court. The law allows an irrevocable trust to be modified or reformed with the consent of the trust’s beneficiaries if the action of modification follows the intent of the trust. Some reasons for reformation are:
The grantor has set a condition on an irrevocable trust he or she no longer believes is appropriate.
A beneficiary experiences a major health or financial crisis.
Tax laws have changed significantly enough to make the trust obsolete.
The trust no longer holds the financial means to warrant a trustee.
The trust does not include the language to appoint a successor trustee and there is no way to appoint one.
All the beneficiaries agree that the trust is not performing as originally intended.
A properly drafted trust is an important estate planning tool. It protects assets during the difficult probate process and provides for loved ones. We have experienced cases where it was necessary to reform the trust in court. To prevent this, we carefully draft our trust documents with specific provisions on how to amend the trust. Amendments to our documents require certain formalities, reducing opportunities for fraud and allegations of fraud. Also, when amending a trust, we generally prefer to amend and restate the entire trust. The provisions are in one document, making the trust easier to read, interpret, and administer.
Contributed by Elizabeth Glines