Revocation of Irrevocable Trust & Distribution of Funds

A trust is set up to hold some portion of the grantor's assets under the control of a trustee for the benefit of a beneficiary. The terms of irrevocable trusts cannot be changed without the trustee's approval or an order from a Superior Court. If you are the beneficiary of an irrevocable trust and seek a court order revoking the trust, you will usually need to convince the judge that continuing the trust harms you and you are competent to manage the assets.

Benefits of Irrevocable Trusts

A grantor may initiate an irrevocable trust to preserve assets and protect them from creditors. After the grantor's death, the trustee administers the trust for the benefit of heirs. This arrangement also has important tax advantages. For example, if the grantor puts assets worth $500,000 into the trust, even if they've appreciated to $1,500,000 at the time of her death, no capital gains tax is due. Assets in the trust step up to their current value at the time of the grantor's death. Other irrevocable trust benefits may protect assets for future generations.

Why You May Want to Break a Trust

As the beneficiary, you may have good reasons for wanting the trust revoked and its assets distributed. The historical tax advantages of trusts are no longer as pronounced as they once were; in some circumstances a trust can even increase the tax burden on heirs. The trustee's management fees may be depleting the trust with little benefit to you. His business judgment may be poor. Sometimes, it may simply be that the trustee's financial control exceeds the terms of the trust.

Revocation vs. Modification

Revoking a trust entirely, so that the assets pass entirely to you, is possible, but it's relatively difficult. According to attorneys with trust practices, a well-planned modification can have some of the advantages of revocation and is easier to achieve. You obtain a court-ordered modification of the trust by petitioning the Superior Court. You show why the modification does not frustrate the purpose of the trust. If, for example, the trust holds funds for your college education and you want to go to an accredited arts institution, the judge will most likely rule in your favor. Unless the terms of the trust prohibit the trustee from disbursing money for an arts education, the trustee has no right to withhold trust funds for that purpose.

Full Revocation

The petitioning process for full revocation is the same as the process for modification. However, dissolving the trust may frustrate the grantor's original purpose. To overcome this objection, you must show why continuing the trust is harmful. One way, for instance, is to demonstrate financial losses due to the trustee's carelessness or incompetence. You may also need to convince the judge that you are competent to control the assets yourself. For example, you could point to your master's degree in business and show that you have been earning and investing your own money for several years.

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About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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