I Fix Broken Living Trusts and Irrevocable Trusts in California
A common example of a “broken trust.”
Twenty years ago, John and Mary Smith, a married couple, created a typical “A/B Marital Trust.” The trust required the division of their property into two halves when the first one of them died. The “A” trust, or Survivor’s Trust, would contain the share of property owned by the surviving spouse, while the “B” trust, or “Bypass Trust,” would contain the property owned by the deceased spouse, but held in trust to take care of the surviving spouse. The trust was created in this way because the exclusion from federal estate taxation was $600,000 for each of John and Mary, and without doing this type of planning, it was possible that their children would end up owing federal estate tax.
Today, in 2016, the federal estate tax exclusion is $5,450,000 instead of the $600,000 that was in effect when John and Mary created their living trust. John dies here in 2016, and the combined estate of John and Mary is about $1,100,000, which includes their house valued at $600,000, and $500,000 of personal property, bank accounts, stock and mutual funds, and IRAs.
Mary does not wish to have to divide the property that she and her husband own together and put it into two new trusts. Because their combined estate is well below the federal estate tax exclusion, a major reason for creating the A/B Marital Trust in the first place no longer applies. There won’t be any federal estate tax for their children when Mary eventually dies.
The question is this: is it possible for Mary to change the requirement of the trust that she had with John so that Mary does not have to divide the property into two trusts because John has died? The answer is “yes,” provided that John and Mary’s children agree with the change as well as Mary. The fact is, any trust that is an irrevocable trust still can be changed, modified, or revoked or terminated as long as the affected parties agreed to the changes. Probate Code Sections 15403, 15404, and 15409 set out the various ways that an otherwise irrevocable trust may be revoked or amended.
In some cases, the original creator and the beneficiaries of the trust may change the trust. This is permitted under probate Code Section 15403. In other cases, the beneficiaries of a trust may make changes if they all consent to the changes. This is permitted under Probate Code Section 15404.
In still other cases, a single beneficiary of the trust may request changes without obtaining the consent of the other beneficiaries, if there are changed circumstances that were not foreseen by the original creator of the trust, and if the requested changes do not interfere with a stated purpose of the trust in the first place. This is permitted under Probate Code Section 15409.
Attorney Robert P. Bergman, Board Certified Specialist in Estate Planning, Trust and Probate Law, assists families in the San Francisco Bay Area with Estate Planning, Special Needs Planning for children and adults, special planning for retirement plan assets, and trust administration.