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Irrevocable Trust Beneficiary Rights California

An irrevocable trust is a type of trust that is permanent meaning it cannot be changed once created. It is designed to give the grantor/settlor the ability to lower their estate taxable rate while giving to charity, heirs, and beneficiaries.

Can a beneficiary be removed from a California irrevocable trust? California Probate Code §16060 protects the Beneficiary rights in California on irrevocable trusts. It states the trustee has a duty to keep the beneficiaries reasonably informed of the status of the probate process, and the beneficiary can enforce their rights by filing a probate court petition. An irrevocable Trust is one that cannot be changed. Generally, it can’t be revoked or amended in any way. Many times, a living Trust, or revocable Trust, will become irrevocable after one of your parents passes. There are also other types of Trusts that are irrevocable when they are created. Children’s Trusts, charitable Trusts, and the like are irrevocable from the start.

 

Power of Appointment in California

Once a California Trust becomes irrevocable, the Trust beneficiaries generally cannot be changed. That’s the good news. The bad news is that there are a few exceptions. The most common exception is called a “power of appointment.” A power of appointment grants a person the right to change the Trust beneficiaries. This occurs most often in Trusts created by married couples. The Trust may provide that upon the death of the first spouse, the Trust becomes irrevocable—cannot be changed or amended. But the surviving spouse is given the power to appoint the assets to any of the children he or she chooses and can even exclude some of the children. The power to appoint could also include people or entities outside the married couple’s children. It all depends on the Trust document.

Powers of appointment can be narrow or broad-based on the purpose for having it in the first place. There are also tax implications to the type of appointment that is granted under the Trust document. But this article is not about taxes. It’s about changing beneficiaries. The point is, a power of appointment can change the beneficiaries even though the Trust cannot be amended. As a result, you must review your Trust document and determine whether anyone has the power to appoint Trust assets to someone other than you.

If your Trust does have a power of appointment, then be sure to note (1) who has the power to appoint, (2) under what circumstances they can exercise the power to appoint, and (3) to whom the power applies. For example, if the power of appointment is limited to the deceased spouse’s children, and the surviving spouse tries to leave everything to her child instead, then that would be a violation of the power of appointment. The power to appoint must be followed as written in the Trust document. Unlike an amendment, the power of appointment can be limited in scope. If you don’t understand the power of appointment terms, then you need to talk to a lawyer about how your power of appointment can affect you.

If your Irrevocable Trust does not have a power of appointment, then the named beneficiaries of the Trust cannot be changed. That’s good news for the named beneficiaries. And not so good news for someone who is not included in the Trust.

Can a California Irrevocable Trust Ever be Changed?

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.

In rare cases, Trusts 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 California 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 California Irrevocable 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.