Given how popular trusts are, there is a very good chance that you will create a trust at some point in your lifetime. If the trust is an irrevocable living trust you may wonder if it is ever possible to make changes to the trust. Specifically, you may decide down the road that you wish to change the beneficiary of your irrevocable trust. Can you do that? The Waukegan irrevocable trust attorneys at Hedeker Law, Ltd. discuss when and how you can make changes to an irrevocable trust.
Understanding Trust Basics
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries.
All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason once active.
Why Would I Want to Make My Trust Irrevocable?
Knowing that a Settlor cannot modify or revoke an irrevocable living trust once the trust takes effect, you may be wondering why you would ever want to give up the ability to make changes to your trust? There are several estate planning goals that are often furthered using an irrevocable living trust, including:
- Asset protection – assets transferred into an irrevocable living trust become the property of the trust once the transfer is complete. As such, the Settlor no longer has a legal interest in the assets held in the trust which means that the assets are not accessible by creditors of the Settlor, a spouse in a divorce, or others who might threaten the assets. That does not mean, however, that you cannot continue to benefit from the trust. While there are a number of specialized trusts that are used as asset protection tools, the important common thread is that they are all irrevocable living trusts.
- Medicaid planning – one common Medicaid planning tool that can help protect your assets is an irrevocable Medicaid trust. Assets transferred into such a trust remain out of the reach of the Medicaid “countable resources” eligibility requirements. The trust must be set up far enough ahead of time, however, to avoid running afoul of the five-year look-back period.
In both cases, only an irrevocable trust will provide the protection needed to fulfill the stated goal. What happens, however, if you establish an irrevocable trust and then later want to change the beneficiary?
Modifying an Irrevocable Trust
It is always best to operate on the assumption that an irrevocable living trust cannot be changed or modified when making the decision to create one; however, in reality it may be possible to modify an irrevocable trust. Modifying an irrevocable trust can be accomplished, but it requires court approval. The law does acknowledge that there are circumstances under which even an irrevocable trust might need to be modified – or even revoked – so it is possible to petition a court to make changes to an irrevocable trust.
Because there is no guarantee that a court will approve your request to change the beneficiary of the trust it is a good idea to choose your beneficiary wisely when you create the trust. If you do find yourself in a position where you believe that changing the beneficiary of your irrevocable living trust is imperative, consult with an experienced trust attorney about your options.
Contact a Waukegan Irrevocable Trust Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding how to change the beneficiary in your irrevocable trust, contact the experienced Waukegan irrevocable trust attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.