The Revocation of an Irrevocable Trust
A trust is a legal vehicle that allows your heirs to avoid probate delays after you die. It also provides you with great flexibility in distributing your assets -- unlike a bequest by will, you can distribute your assets gradually instead of in lump sum. It is possible to create an irrevocable trust; however, even an irrevocable trust may be revoked under certain circumstances.
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Governing Standards
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Two sources of standards govern the disposition of an irrevocable trust -- state law, and the instructions given in the trust deed that created the trust. Although the laws of the various states differ in some respects, the basic principles of trust law are the same. The instructions contained in the trust deed -- what property goes to which beneficiary -- will generally be respected by courts. The operative standard, however, is the intentions of the grantor at the time the trust was created -- even if he changes his mind later. In some cases, instructions in the trust deed are unenforceable -- if, for example, it purports to dispose of community property assets at the expense of the grantor's spouse.
Irrevocability
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The laws of every state presume that a trust is revocable unless the trust deed states otherwise. Even if the trust deed states that the trust is revocable, it may be treated as irrevocable under two circumstances -- if the assets of the trust were not placed in the name of the trust, and if the grantor exercised personal control over the assets after the trust was created. A trust can still be irrevocable if the grantor, for example, donated his personal residence to the trust, leased it back from the trust and continued to live there while paying rent to the trust at market rates.
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Mutual Consent
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An irrevocable trust may be revoked with the written consent of the grantor and all actual and contingent beneficiaries. A contingent beneficiary is a beneficiary who may or may not receive benefits from the trust. For example, the trust deed may grant certain property "to John, but if John dies before I do, to Megan." In this case, Megan would be a contingent beneficiary whose consent would be required to revoke the trust. The problem is that if Megan is a minor, she cannot give legal consent to revoke a trust. This problem can be solved in advance by making "John's next of kin" the contingent beneficiary instead of naming Megan specifically.
Court Order
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A court order is generally required to revoke an irrevocable trust if the grantor dies, becomes mentally incapacitated or becomes unable to communicate his wishes due to accident or illness. A court is likely to revoke the trust only if all beneficiaries consent, and only if the reasons for revocation outweigh the purpose of the trust -- if, for example, a house owned by the trust is generating property tax liability but the trust is not generating income to pay that liability.
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