Do you have an irrevocable trust and now wish you could change its terms? Maybe you want to provide more asset protection to the beneficiaries or loosen rigid distribution standards. It’s possible to reach those goals, as well as others that might benefit you and your beneficiaries.
Historically, settlors, trustees, beneficiaries, trust attorneys and even courts have viewed irrevocable trusts, to a great extent, as unchangeable. Over the past 15 to 20 years nationally, and over the past 10 years in Missouri, this understanding, at least among trust attorneys, has changed dramatically. There are now multiple methods available for changing the terms of irrevocable trusts, with or without court involvement. Because trust law is governed by the states, the methods available for implementing changes can vary widely from state to state.
In Missouri, certain irrevocable trusts may be modified or terminated by an agreement among the creator of the trust and the beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust. Also, the administrative terms of irrevocable trusts may be modified by an agreement among “interested persons,” which is often understood to mean the trustees and the beneficiaries.
The newest method for changing the terms of an irrevocable trust is commonly referred to as “decanting.” In essence, decanting is the exercise of a trustee’s power to distribute assets from one trust to another trust, perhaps with different terms.
While there are many methods for changing the terms of an irrevocable trust under state law, keep in mind that there are potential income and transfer tax consequences to making any such change.
Read a more detailed summary of these methods here.