Q. My late wife and I set up a trust about 10 years ago, and now I want to change the Successor Trustee and remove a beneficiary. Is that a simple thing to do?
A. Like so many things in life, it depends. Here are some of the considerations:
Is It Amendable? Not all trusts can be amended, which often comes as a surprise to clients. If your trust was set up years ago, it is likely that it included tax-saving provisions requiring that, upon your wife’s demise, her share be allocated to an irrevocable sub-trust (often called a “ByPass”, Exemption, Credit Shelter, or just plain “B” Sub-Trust). By design, and in order to achieve tax-saving objectives under then existing tax law, those sub-trusts could not be amended by the survivor, and could usually be changed only by court order. However, your own share, typically called the “Survivor’s Trust”, could be amended.
Are There Other Provisions That Require Change? When we review older trusts, we often discover other provisions that should also be changed. Examples: adding provisions to coordinate the trust with a Power of Attorney so as to permit further changes in the event of your later incapacity, as need requires and/or to facilitate Medi-Cal long term care planning; including HIPAA Privacy Waiver provisions to facilitate assumption of responsibility by the named Successor Trustee in the event that the prior trustee becomes incapacitated; adding Special Needs provisions to protect the inheritance of beneficiaries receiving public benefits, such as SSI or Medi-Cal; and, making “no contest” provisions compliant with changes in the law. To be sure, the same issue presents as to whether we can amend the trust without a court order.
Amendment vs. Restatement? If a change can be made, the next consideration is whether to do so by Amendment or by a complete Restatement. A Restatement is often preferred: upon your later demise, when it comes time to send out the statutory notices to beneficiaries and heirs in connection with formal trust administration, a Restatement often turns out to have been the better choice. Reason: Unlike an Amendment, a Restatement does not require that the prior version of the trust go out with the notices. You can imagine the benefit to family harmony to avoid having to reveal that an originally named trustee or beneficiary was later replaced. Another consideration: a Restatement may also be preferred if the trust has had multiple amendments, making it now cumbersome to read.
Professional Responsibility: An analogy from the medical field may be helpful: imagine calling a new physician seeking only a prescription for a persistent stomach ache. It is doubtful that any doctor would accommodate your request without a physical exam and appropriate lab work. The situation is much the same for members of my profession. When an attorney reviews an existing trust with an eye toward making even the simplest change, he or she then becomes responsible for the entire trust. Most attorneys take this responsibility very seriously.
That said, much good often comes from requests like yours: if the trust is amendable, we can often amend the trust to make it more suitable to the client’s present circumstances and current tax law. Alternatively, if it is only amendable by court order, we can evaluate the option of petitioning the court for authority to reform the trust. Indeed, these client requests for changes often end up rescuing what might otherwise be a trust badly in need of reform. They also often trigger review of companion documents, such as Powers of Attorney, with similar beneficial results.