This is not what we expected…how to modify your California irrevocable trust

uncoveringtheunexpected

One of the great challenges in drafting any Trust is figuring out how it will work, and affect the beneficiaries, years from now. Trusts are always written today, but enforced in the future. The oldest still-operating Trust I have personally dealt with in my career was created in 1948!

Circumstances can change over time, and sometimes drastically so. But once a Trust becomes irrevocable (usually after the death of the Settlor), there is no easy way to change the Trust terms.

Trust can be modified, however, even after becoming irrevocable. It just takes a bit of work, cooperation, or help from the Court, depending on your situation.

The California Probate Code sets out rules for modifying irrevocable Trusts. Probate Code sections 15403 to 15414 sets forth rules for modifying irrevocable Trusts.

The easy way is under Sections 15403 and 15404, which allow modification of a Trust where all the beneficiaries and the Trust Settlor agree, or if the Settlor is no longer living, all the beneficiaries can agree. It is always easier to proceed when the beneficiaries agree to the change. And most courts in California will liberally construe Trust modification where there is agreement among the beneficiaries.

Where the beneficiaries do not agree, however, modification is still possible, but it requires a different showing. It all comes down to “changed circumstances.” Under Probate Code section 15409, a Trust can be modified upon petition to the Court where you can show that due to circumstances not known or anticipated by the Settlor, the purpose of the Trust will not be achieved.

What do changed circumstances look like in real life? For example, a Trust is held for the benefit of a child until age 40. The Trustee can distribute income for the support of the beneficiary, but an opportunity arises where the purchase of a condo would best serve the beneficiaries support needs. Unfortunately, the Trust does not allow the Trustee to purchase real property.

In this case, the Trustee or the beneficiary (or both) could petition the court to allow the purchase of the condo to properly support the beneficiary. Perhaps that purchase was not known or anticipated by the Settlor, but if it will help to achieve the purpose of the Trust (which was for the support of the beneficiary), then modifying the Trust would be allowed to achieve that purpose.