Modifying Irrevocable Trusts: Changing the Unchangeable?

Estate planners often encounter circumstances where a previously drafted irrevocable trust is defective in some key aspect and requires modification. This defect may be due to a change in circumstances or an error in drafting, or as a reaction to legislative changes impacting the tax treatment of trust income. The recent tax reform legislation, for example, will likely require estate planning counsel to review existing trusts to ensure they are tax-efficient vehicles for wealth transfer.

There are several ways in which an irrevocable trust can be fixed. Decanting is only one option among many that may be used to correct a trust. Estate planning counsel must be proficient at recognizing which techniques may apply to a particular set of facts and then implementing those techniques.

Additionally, counsel must analyze the applicability of state law. A number of states have seen significant developments in the law governing irrevocable trusts. Delaware’s recent enactment of a sweeping nonjudicial modification statute provides estate planners with significant opportunities to relocate a defective trust’s situs to Delaware to make needed modifications. The panel will explain the advantages of changing a trust’s situs to Delaware to benefit from the various methods available for modifying an irrevocable trust.

Listen as our experienced panel reviews the key tools available to modify a trust and prepares estate planning counsel for determining state law applicability, notice and consent requirements, and tax considerations.

1. Modification methods
   1. Judicial reformation
   2. Non-judicial reformation
   3. Division
   4. Amendment
   5. Decanting
   6. Other
2. Identifying governing law
3. Recent Delaware developments expanding modification opportunities
4. Identification of necessary parties
5. Representation of parties
6. Impact of tax reform law on modification of irrevocable trusts

The panel will review these and other key issues:

• What methods are available to modify an irrevocable trust?
• Which state law will govern a trust modification?
• How will the governing state law apply to the validity, construction or administration of the trust?
• Who must be notified and give consent before a trust can be modified?
• What tax consequences should counsel consider when modifying an irrevocable trust?