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SUCCESS STORY OF THE MONTH – IRREVOCABLE ‡ UNCHANGEABLE

Often clients are surprised to learn that their “irrevocable” trust can be changed. There are several ways to make changes to an irrevocable trust including by court order, agreement of all interested parties, decanting (pouring into another trust), or by simply exercising a “power of appointment” if retained in the original trust – which is something that is often utilized.

First, there are numerous types of irrevocable trusts, but the irrevocable trusts we often change are irrevocable grantor trusts that are established for protecting the grantor’s assets (assuming no existing lawsuits or threatened lawsuits) from creditors or for not counting as a resource for Medicaid purposes if one has inadequate long-term care insurance or income to pay for long-term care (which usually ranges from $5,000 – $8,000 per month in this area).

The irrevocable grantor trust usually retains a “power of appointment” whereby the grantor delineates what changes could be made at a future date (either during life or at death). The retention of this power makes the trust tax neutral (in other words, the grantor is taxed at his or her individual rate instead of the trust being taxed at the trust tax rate.

Some recent examples of clients making changes to their irrevocable trusts include: cutting out a beneficiary, changing the amount a beneficiary receives, changing how distributions are made to the beneficiary, changing who is the beneficiary, etc. So, the trust may be irrevocable as to certain terms and not for others. Even if the grantor becomes incapacitated, the grantor can appoint someone else (the “trust protector” or “trust advisor”) to make changes pursuant to the terms of the trust.

The success story of the month involves an irrevocable trust which stated that if a beneficiary acted badly, then the grantor of the trust or the trust protector could change beneficiaries to certain friends. In this case the beneficiary committed a criminal act against his own parent (the grantor). Although the grantor lost mental capacity, the trust protector was able to change the beneficiary to certain friends by exercising the power of appointment.

If you are interested in learning more, please sign up to attend our free “Estate Planning Essentials” workshop on Saturday, February 2, 2019 at 10:00 a.m. or Thursday, February 28, 2019 at 1:00 p.m. or attending our “Facebook Live Event” on Saturday, February 9, 2019 at 10:00 a.m. by calling (214) 720-0102 or signing up online at www.dallaselderlawyer.com

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