How to Modify a Trust in Alton, IL
Trusts are no longer solely for the advantage of the wealthy; they are now widely used by the average individual for broad spectrum of estate planning objectives. In fact, as your estate plan changes over time, you may find that you need to include more than one trust into your overall plan. You may also want to make modifications to or alter a trust that you established previously. Modifying a trust is typically easier than making modifications to your Last Will and Testament; nonetheless, if the correct protocols are not followed, an attempt to modify a trust can have disastrous consequences for your total estate plan. Let’s look into how to properly amend a trust in Alton, IL so that your estate plan remains intact, and functions as intended.
A trust is a relationship in which one party holds property for the benefit of another. A Settlor, also known as a Grantor or Maker, establishes a trust by transferring property to a Trustee. The Settlor appoints a Trustee to manage the trust’s assets on behalf of the beneficiaries. It is also standard practice to nominate a successor Trustee. Beneficiaries can be an individual, an entity (charity or religious organization) or a family pet. Trusts can also have multiple beneficiaries, as well as having both current and future beneficiaries.
Types Of Trusts
There are two types of trusts: testamentary and living (inter vivos) trusts. Testamentary trusts are initiated by a provision in the Settlor’s Last Will and Testament and so do not become effective during the Settlor’s lifetime. A living trust, on the other hand, is initiated during the Settlor’s lifetime.
Living trusts can be put into two sub-categories, revocable and irrevocable. A revocable trust allows the settlor to make any changes or terminate the trust at any time, for any reason. When it is an irrevocable trust that settlor can not make any changes or terminate the trust any time, for any reason once the trust has been put in place. An irrevocable living trust can be modified or terminated by the beneficiaries’ agreement and/or by a court decision, but never by the Settlor. Testamentary trusts on the other are always revocable because they are established by a provision in a Will, which can be repealed at any moment before the Testator’s death.
Modifying a Trust
A trust has four other parts in addition to the Settlor: The Trustee, beneficiaries, terms, and funding. It is not unlikely for a Settlor to want to amend one or more of these aspects after the trust has been established. A Settlor may be looking for a replacement when a Trustee is not fulfilling his or her duties and obligations satisfactorily. A beneficiary may be added or removed because of the birth of a child/grandchild, marriage, or divorce. The provisions of a trust may need to be modified when the value of the trust assets rises. All these scenarios indicate a change in trust. Whether or not the Settlor can change a trust depends on the type of trust that was established.
If the trust has not been updated before, using a trust amendment is the easier of the two approaches and is suitable for relatively small adjustments. A trust restatement is a better option if the trust has already been changed multiple times or if you want to make large or complex changes to the trust agreement. Amending a trust is as simple as making the desired modifications on a separate piece of paper and referencing the original agreement to clarify where/how the changes fit in. The original trust agreement is then added to the trust amendment.
When the required changes are more comprehensive and/or sophisticated, or if the trust agreement has previously been modified multiple times, a trust restatement is utilized. A trust restatement requires a complete rewrite of the trust agreement, with the necessary revisions incorporated into the new agreement. Although it may appear that you are establishing a new trust, there is a significant legal distinction between trust restatement and new trust creation. Because the trust remains intact, a trust restatement does not involve the transfer of trust assets to a new trust. A trust restatement is the preferred because when you create a new trust you must transfer the trust assets from the old trust to the new trust, this legal step can have considerable unfavorable tax repercussions.
For more information or if you have any questions contact us at Diaz Law Offices. Our team of experts are here to help.