So You Think You Want to Revoke an Irrevocable Trust?

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Practice Areas: Estate Planning

Trusts are often drafted to last for decades based on presumptions and ideas that may not mirror the reality of the future. Estate planning attorneys are frequently confronted with clients who seek assistance in the revocation of a trust whose provisions do not take advantage of present-day laws or provide for current beneficiaries. Some of the motivations in revoking a trust include the extension of a trust term, providing for a new beneficiary, such as newly born or adopted child, expanding the trustee’s powers, disinheriting beneficiaries or limiting their distributions to permit the beneficiary to qualify for Medicaid and other governmental assistance. Although New York’s present statute under the Estate, Powers and Trust Law (“EPTL”) allows for a trust to be revoked, the imposed limitations on the how and when can quickly become a stumbling block.

Requirements of Revoking an Irrevocable Trust

In accordance with the laws of New York, the creator can revoke an irrevocable trust under two instances: If the trust contains language allowing the instrument to be revoked – which most irrevocable trusts do not – or the instrument can be revoked in whole or in part under EPTL Section 7-1.9. In revoking a trust in its entirety or a portion thereof, the creator must state his intention to revoke in writing. The creator must sign the document and have his signature notarized. Also, all beneficiaries named in the trust must consent to the revocation in writing, in which all signatures must be notarized. The creator must then deliver the written consent of all parties to the trustee. Upon receipt, the trustee relinquishes all power over the trust assets. During this time title to the trust assets should be transferred back to the creator.

It is important to note that not all trusts can be revoked based on this statute. Some trusts, such as instruments created under an infant’s comprise order, typically contain a provision stating that revocation is only proper with a court order. In these instances, revoking a trust under the EPTL statute will be ineffective - the court of proper jurisdiction will have to be petitioned instead.

Beneficially Interested Parties

In order to properly revoke an irrevocable trust, the creator must obtain the written consent of all parties having a “beneficial interest in the trust.” The consent of any minors or persons under a disability is ineffectual, since such individuals are considered to be incapable of giving consent. However, there is a line of case law that points out that the consent of a beneficiary who is either a minor or disabled is not needed when the creator can show that the revocation is in the favor of such beneficiary. The EPTL statute requires only the consent of living, identifiable beneficiaries, therefore, the consent of any persons named as beneficiaries that are not living at the time of revocation, whether unborn or predeceased, is not required.

Conclusion

With the availability of revocation, the term irrevocable no longer means for eternity.  However, it is advised that although the creator may have the option of revoking, an in-depth analysis of the trust language, case law, the revocation statute, and the possible tax implications be reviewed in a comprehensive and prudent manner.

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