Medicaid and Annuities; How they work in Estate Planning

When someone married wants Medicaid to pay for a nursing home or an assisted living facility, but has too much money to qualify, they may consider the purchase of an annuity. Annuities can be use in Medicaid Planning. Immediate income annuities are the type of annuities that are most often used in Medicaid planning. An immediate annuity is a contract that is purchased from an insurance company with a single lump-sum payment and in exchange, pays a guaranteed income that starts almost immediately. The payments got to the spouse not in the facility.

There are some catches. Annuities would have to be irrevocable as a condition to be considered a “Medicaid annuity.” Also, most states require that it be non-assignable and non-transferable. In addition, annuity payments must be completed before life expectancy of the community spouse (the spouse not in the nursing home), determined using Social Security life expectancy tables.

How it works

Let’s say a couple has about a $100,000 in assets. They do not want to have to spend it down on medical bills so they decide to buy an annuity as part of Medicaid planning. The money is put in the name of the community spouse who then purchases an immediate annuity wherein the insurance company makes payments to the community spouse. This takes the money out of the Medicaid applicant resources, allowing for the applicant to receive Medicaid.

How to avoid Medicaid penalties

To avoid Medicaid penalties, the annuity must be:

a series of substantially equal monthly payments;
nonassignable and nontransferable;
irrevocable;
immediate;
purchased from a commercial insurance company;
paid within the life expectancy of the community spouse; and
must designate the state Medicaid agency as the primary beneficiary after the death of the community spouse.

Further, you must disclose you interest in the annuity.

An example of how the life expectancy requirement works would be if the community spouse’s life expectancy is 10 years according to the social security actuary tables; and you paid $120,000 for an annuity, you must receive annuity payments of at least $1,000 a month ($1,000 x 12 x10 = $100,000).

Also, if you purchased an annuity with a term certain (let’s say 8 years), it must be shorter than your life expectancy. If the community spouse dies with guaranteed payments remaining on the annuity, they remaining payments must be made to the state for reimbursement up to the amount of that Medicaid paid for either spouse.

In the application for Medicaid, which should be done when the person is entering the nursing home, the applicant must disclose that there is an annuity. If not disclosed, the agency may terminate coverage or deny coverage.

Note that an annuity works well for couples but not for single applicants. The reason is that the the applicant would have to make monthly payments from the income received to the nursing home; but in the case of a community spouse, the community spouse does not.

When determining whether to purchase an annuity for Medicaid purposes, it is important to speak with a professional advisory because the law is evolving and new restriction may pop up in the future. Speak with us about estate planning to get ahead of the process.

What to do when Loved Ones Abandon Property

Have you ever driven down a road, looked out the window to see a boarded up, decrepit, rickety, dilapidated property, and wondered what the story is behind it? Of course you have; we all have. Children (and some adults!) imagine that it is haunted, try to stay away but cannot resist attempting to go into it. Others think that it is an eye sore and wonder why it is allowed to stay in such a condition. Or, you wish you could buy it to fix it up and make it beautiful.

There can be many reasons why the property ended up and is allowed to stay is such a condition. Mostly, it is because the debts are so high that the owner cannot possibly pay them; or because the renovations are cost prohibitive or not worth the money. Possibly the taxes continue to be paid; and the municipality has not condemned the property. Or it is now owned by the mortgage company or the municipality who are not doing anything about it.

Another possibility is that it is the laziness or malfeasance of the personal representative of the estate. Someone dies and the person in charge fails to do anything about the home. The heirs, if any, do not have the resources to go to court to recover the property or cannot be found. The property for all intent and purposes could be labeled abandon. Another possibility is the person who owns it can not be found dead or alive.

In any of the above cases, an heir can take some steps to make sure they are heard in court in order to obtain their share of the property. Also, if you want to buy the property you can take certain steps to do so.

You would want to look at the county or town’s records (probably on line now) to see who is listed as the owner of the property. You would want to see if the property is still in the owner’s name or the estate’s name, or even a mortgage company or the municipality.

If in the estate’s name, then you know that an estate proceeding has taken place in the local probate court. You can check the court records to find the documents of the proceeding to determine what has happened. If you are an heir first in line for distribution of assets, you can make a petition to the court for an accounting of the proceeding and ask why the property is still in the estate’s name.

If the property is still in the name of the decedent, possibly there is no action in court yet. You could inquire with relatives why nothing has happened. Or you can take your own steps if you are an immediate heir to represent the estate.

There also may be some cases when a distant relative has left assets with no immediate heirs to distribute the asset to; or the heirs cannot be found. In that case the property could have escheat (be given to) the state. Escheated lands occur when the title fails from a defect of heirs, reverting, or escheating to the people (the state). If that happens, you may have to petition the court for the return of the land.

If you have an interest in land or know of a deceased relative who had owned land wherein you may have a claim, speak with us; we may be able to assist you in this situation.

IS A RELATIVE WHO ABANDONED ME ENTITLED TO MY ESTATE?

Let’s review a few scenario’s we may have unfortunately heard.

A husband leaves a wife with a few kids to be never heard from again. The wife doesn’t get a divorce for one reason or another. Forty or Fifty years later, the wife dies with no will. She did well for herself. Now the husband comes back and wants a share. Is he legally allowed to have his share?

Or the father or mother of a child left the home of the child. The child grows up with one parent or in a foster home. As a young adult, the child does well for himself, is about to be married and tragically dies in a car accident. He had not children. He had no will. Is the parent who left or parents who left (or parents whom he was taken away from), entitled to the assets of his estate?

Also, who has the right to petition the court to represent the estate? Do the children in the first case have a right to petition the estate to represent it? What about the second case when there are no children?

These are the complicated issues that can arise in an estate proceeding and it would certainly behoove an individual to retain an attorney to navigate the options and system.

In each case above, the spouse or parent can be prevented from receiving a share of the estate depending on the facts.

A spouse who willfully and without just cause abandons and refuses to live with the other spouse and is not living with the other spouse at the time of such spouse’s death would be considered abandonment in most states. Court will look at whether the abandonment continued until the time of death or if the surviving spouse had a duty to support the decedent and failed to do so. The abandonment must be unjustified and without consent.

There could be a case when a spouse leaving the home is not considered abandonment: if a spouse has a legitimate reason to leave the other spouse such as abuse; or if it was by mutual consent to live apart such as if the spouse has a drug addiction.

Abandonment also applies in a parent/child relationship, when a person has severed ties with and failed to provide support to the child or a ward that the parent was legally responsible to take care of.

In most states, any parent who has willfully abandoned the care and maintenance of his or her child would lose all right to intestate succession in any part of the child’s estate and all right to administer the estate of the child, except –

Where the abandoning parent resumed its care and maintenance at least one year (time various among states) prior to the death of the child and continued the same until its death; or
Where a parent has been deprived of the custody of his or her child under an order of a court of competent jurisdiction and the parent has substantially complied with all orders of the court requiring contribution to the support of the child.

Because the person who has the allegedly abandoned the decedent usually petitions the court for a share of the estate, the nearest heir in relation to the decedent can petition the court (or take other procedural steps) to disqualify the spouse as the administrator of the estate. There may be a standing issue (the right to submit a petition); but once the court gets an inkling that there is an abandonment issue, it will explore the allegation seriously.

Speak with us if you find yourself in this situation: (212) 201-1908

SELF SETTLED TRUSTS: WAYS THEY ARE USED IN ESTATE PLANNING

When developing an estate plan, you may want to consider various trust to, among other reasons, protect your assets from potential creditors. A trust that may be available depending on the state in which you live is a Self Settled Trust.

A Self Settled Trust is when a grantor (also known as creator, settlor or trustor) creates an irrevocable trust (wherein the assets come out of the estate of the grantor) when the grantor transfers money into the trust and is also the beneficiary of the trust. Also, referred to as self settled spendthrift trusts, the settlor forms the trust for his or her own benefit. In such trusts, the settlor and beneficiary are one and the same person. This is done for protecting the trust assets from creditors.

When forming the trust, the trustee must be independent with full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. The goal of the trust is so creditors of the beneficiary cannot reach the funds in the trust and the funds are not actually under the control of the beneficiary.

A trust generally will not be treated as a spendthrift trust unless the trust agreement contains language showing that the creator intended the trust to qualify as spendthrift. This is what is known as a spendthrift clause or spendthrift provision.

When a self settled trust is formed in the United States, the trust is also known as a Domestic Asset Protection Trust (“DAPT”).

Usually, a DAPT must comply with the following requirements:

• the trust must be irrevocable and spendthrift;
• at least one resident trustee must be appointed;
• some administration of the trust must be conducted in respective state; and
• the settlor cannot act as a trustee.

States like Alaska have allowed DAPTs. Nevada also allows DAPTs with restriction as to when creditors can attempt to attached the funds in the trust. Other states that have a DAPT statute are: Delaware, Mississippi, South Dakota, Wyoming, Tennessee, Utah, Oklahoma, Colorado, Missouri, Rhode Island and New Hampshire.

Most states do not allow for self settled trust to avoid payment to creditors. Also, it is unclear whether these states will recognize the DAPT state trust if created to avoid a known or potentially known creditor. Trusts are generally governed by the laws of the jurisdiction that is designated by the settlor as the governing jurisdiction. A conflict can arise when the settlor lives in one state but forms the trust in a state that allows DAPTs; or when real property is in a non DAPT state, yet put in the trust.

If a court from one state refuses to recognize the protection of a DAPT and enters a judgment for the creditor, the creditor may be able to enforce the judgment against the trustee of the DAPT, even if that trustee was located in the DAPT jurisdiction. However, there would still be a procedural hurdle to enforce the judgment in the DAPT state.

Offshore Self Settled Trusts

There are some foreign jurisdiction that allow for self settled trust. The use of them is sometimes controversial because it is alleged that the settlor is merely avoiding known creditor claims. These foreign jurisdictions make it difficult to collect on them by passing statutes for trusts:

there is no recognition of foreign judgments with respect to trusts;
there is a very short statute of limitation on fraudulent transfers;
the creditor must show that the debtor was insolvent, and must establish the debtor’s intent to “hinder, delay or defraud” beyond a reasonable doubt;
the anti-duress provisions (i.e., preventing the trustee from making a distribution when there is an alleged creditor claim) are incorporated into the statutes; and
spendthrift protection is extended to self-settled trusts.

Nevertheless, there have been some cases wherein the off-shore trusts are subject to creditors’ claims.

Use of self settled trusts is evolving law. Speak with us about these issues if you want to protect some of your assets from future unknown creditor claims: (212) 201-1908

WHAT HAPPENS IF A TRUSTEE COMMITS FRAUD?

When you are beneficiary of a trust, sometimes it is practically impossible to obtain information on the trust or the trustee’s activities; not because of the trust terms or statutory requirements, but only because the trustee believes it is unnecessary to respond to every beneficiary request. In the worse case scenario it is because the trustee is committing malfeasance and/or fraud. This article reviews a trustee’s responsibilities and what a beneficiary can do if the trustee may be committing fraud.

Trustee’s responsibilities

When a grantor forms a trust, it is because the grantor intends that the assets are handled and distributed as per the intent of the grantor. The terms of the trust should mirror the grantor’s intent. The most important point a trustee must remember is that the trustee must follow the terms of the trust on behalf of the beneficiaries. The trustee is a fiduciary with respect to the beneficiaries of the trust, both the current beneficiaries and any remaindermen named to receive trust assets upon the death of those entitled to income or principal now.

A trustee’s troubling actions

A trustee can get into trouble in various ways. One way is to fail to account for the assets and income of the trust in the proper way. There may not be any intent to defraud or any self interest involved but only that the trustee is lackadaisical or unable to effectively manage the trust.

Another way is if trustees act in their own self interests. This usually occurs if the trustee is also a beneficiary. The trustee may be inclined to act in the best interest of oneself verses all the beneficiaries and remaindermen.

Another case is when trustees use trust funds for themselves. A typical scenario would be that the trustee “borrows” money from the trust for his or her own purposes, intending to return the money but never is able to do so. Possibly the trustee believe he or she is having temporary financial difficulties and uses the money but then can never pay it back.

The worse case would be when the trustee blatantly takes money from the trust with no intent of returning it.

Claims against a trustee

If a beneficiary believes that the trustee is committing malfeasance or fraud, the first step is to request or demand an accounting of the trust from the trustee. If the trustee fails to provide one or fails to provide a legal justification why one need not be given, the beneficiary would have to seek judicial intervention.

Some wonder what happens if the malfeasance or fraud occurred years before discovery. Because a trustee has a continuing duty, the statute of limitations may not have “kicked in.” A beneficiary’s attorney would certainly make the argument that the statute of limitation is tolled or has not expired while the trustee is continuing in the role. And even if the trustee claimed that the Statute of limitation has expired, a court would take seriously the argument that the claim falls within the statute of limitation or even consider an extension of law if there was blatant fraud. Case Law research would provide further support. Further, in most states, the statute of limitations for fraud occurs the later of when it occurred or when it was discovered. So, if the fraud was recently discovered, most likely the claim would still fall within the time period for filing.

Moreover, even if there was not fraud, an accounting of the trust would show the trustee used moneys for the trustee’s own benefit and the court would require the trustee to turnover the money.

Lastly, if the fraud is so egregious, it may arise to the level a a crime.

Speak with us about these issues so you have a full understanding your rights in this matter: (212) 201-1908

WHAT ARE BLIND TRUSTS AND HOW DO THEY WORK

You may have heard of Presidents and other political figures put their assets in a blind trust when they are candidates or elected officials. But what are blind trusts and how do they work? Can people other than politicians use them and if so why would they use them? This article will address some of the issues.

Definition

A blind trust is essentially a deed that describes an agreement that falls under the category of irrevocable living trusts (although sometimes they can be revocable trusts). The fiduciaries, namely the trustees or those who have been given power of attorney, have full discretion over the assets, and the trust beneficiaries have no knowledge of the holdings of the trust and no right to intervene in their handling.

Blind trusts are generally used when a settlor (sometimes called a grantor, truster or donor) wishes to keep the beneficiary unaware of the specific assets in the trust, such as to avoid conflict of interest between the beneficiary and the investment or to limit knowledge of the trust’s assets and distributions to multiple beneficiaries to avoid disputes or bad feelings among the beneficiaries.

Who usually uses them

Politicians or others in sensitive positions often place their personal assets (including investment income) into qualified blind trusts (pursuant to federal law), to avoid public scrutiny and accusations of conflicts of interest when they direct government funds to the private sector.

Also, a blind trust is often used by those who have come across a fortune within a short period of time (e.g. an inheritance, or a multimillion lottery) in order to keep their identity anonymous to the public.

Corporate executives or anyone owning 10 percent or more of a company’s outstanding shares also contemplate using blind trusts. A blind trust can enable the sale of insider stock pursuant to Rule 144 under the Securities Act of 1933 without regard to window periods (blackout periods during which insiders may not trade in company stock), which would otherwise constrain the timing of stock sales.

General requirements to form a blind trust

Generally a blind trust must comply with the following conditions:

(1) the trustee must be a disinterested party;

(2) the trustee must be given complete discretion to manage the trust including, but not limited to, the power to dispose of and acquire trust assets;

(3) the trustee must be required to notify the filer (i.e., beneficiary) of information necessary to be reported on the filer’s tax return; and

(4) the trustee must be prohibited from disclosing to the filer any information concerning
the replacement assets except for information required or tax information.

Beneficiary issues

Sometimes the issues of disclosure occurs when a beneficiary wants to know what assets are in the trust and what capital gain, dividends or interest is being generated. Beneficiaries may be required to complete the tax returns with regard to their share of the trust. Yet, the beneficiary has no access to trust documents.

Depending on the state, there may be a mandate for the level of disclosure to the beneficiaries. Also, although a trust may have restrictions on disclosure, it may not be as “blind” as some beneficiaries are led to believe, i.e., may be just an excuse to prevent oversight.

Blind trust are very complicated. They may be appropriate for you in certain situations or you may already be a beneficiary of a blind trust. Speak with usabout these issues if you are contemplating the use of them in your estate plan or you are a beneficiary of one: (212) 201-1908

HOW TO PLAN FOR YOUR PET AFTER YOU DIE

So many of us have pets that we love. Few of us think about what will happen to our pet when we die. It is not because we do not care what happens, but that it is something we just do not think about. This article discusses options on how to arrange for the care of your pet after you die.

What happens if you do nothing

When you die, your pet actually is considered an asset of the estate. Generally, pets are property of the owner. When you die, your pet becomes part of your estate for distribution (albeit the word distribution is not a word most people would think of when determining what to do with a pet after someone dies).

Because the pet becomes part of the estate, the personal representative will be the one who will make a decision on what happens to the pet. If you die without a will, you will not necessarily know who that person will be. If you die with a Will, you can name the executor of your estate who will handle your assets.

If you do not mention the pet in a will, then the personal representative will have to determine what to do with the pet. One option is to leave the pet with a shelter, which seems rather harsh. However, if one of your heirs or beneficiaries do not step up to take care of the pet, then that may be the end result.

Or conversely, you may have two or more heirs fighting over who gets to have your pet. Obviously, your pet cannot be split between heirs; or any agreement to “share custody,” sounds rather unusual. So, ultimately, the personal representative will have to decide who gets the pet; or alternately, sell the pet; or ask the court to decide.

Without mentioning your pet in a will, you will leave it up to your personal representative to make the decision.

What you can do

If you do not want to leave it up to chance, you can either mention the pet in your will and state who will take the pet; or leave a note near your will or tell someone what you would like to be done. Not putting the terms in your will still leaves it up to the discretion of the personal representative but the representative will at least know your intent.

Ultimately, you can leave the pet to someone in your will. If you leave it to the person outright, the person may not want the pet or will take it and give it away. Therefore, some people create a “pet trust” set forth in a Will, naming a trustee and an amount of money for the care of the pet. This way, the person selected as the trustee can decide if they want to take care of the pet and has money to pay for the pet’s expenses. Afterward, any money left over can either be given to the person taking care of the pet outright, or shared among other beneficiaries.

Since you may draft your will at an earlier date and your pet may die before you die, and then you obtain another pet, you can draft language to address this situation.

Terms of a pet trust should be drafted by a professional. Speak with us about these issues: (212) 201-1908.

DIFFERENT ESTATE PLANNING WAYS TO GIVE TO CHARITIES TO MEET YOUR NEEDS

Part of many peoples’ estate plans is to give to nonprofit organizations or charities. Providing to charities can be annually, through living trusts, by bequest in a will or through a testamentary trusts. This article will describe some of the ways to give to a charity if you want it part of your estate plan.

Year End Giving to Charities

If you plan to make a charitable contribution to a charity as part of your annual plan, consider these tips the IRS suggests you should keep in mind:

Check to make sure it is a qualified charity. If the charity is qualified you can deduct donations you give to churches, synagogues, temples, mosques, other nonprofit organizations and governmental agencies. The IRS provides a check list so you can see if your group is qualified.

Keep records of monetary giving. Make sure your keep the proper records to show you made a charitable gift to obtain a tax deduction. The statement must show the name of the charity and the date and amount of the contribution.

Keep records of donating items. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.

– Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records
required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

Note the IRS says that if you charge your gift to a credit card before the end of the year it will count for the current year. This is true even if you don’t pay the credit card bill until the following year. Also, a check will count for the current year as long as you mail it in the current year. Also, special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.

Giving to Charities in your Will

If you decide to give moneys to a charity in your Will, make sure you have the charity name, address and phone number to provide to your estate planning professional. Many charities have specific addresses and tax ids that should be listed in the Will in order to stream line the process to make a bequest. So, providing the name of a charity is not enough to actually allow a bequest to be made. Provisions in a Will should be made to account for the situation where the charity is no longer in existence. You would want to provide that a successor in interest can receive the money; or if the charity no longer exist, for another charity to receive the money or for it to go to another beneficiary or your residual estate.

Further, if you do not want to provide to the charity outright, you may want to create a testamentary charitable trust (see below for the names of the trusts). You could structure the trust wherein the charity gets moneys on an annual basis for a certain amount of years and then the remainder of the trust goes to another beneficiary. Or, you can structure the trust where a beneficiary received moneys annually for a certain amount of years or during life and the charity get the remainder of the trust after the designated time period or upon death.

Giving to Charities in a trust during your life

You may want create trusts for charitable giving during your life similar to the testamentary charitable trusts mentioned above. there are two types:
– Charitable Remainder Trust; and
– Charitable Lead Trust.

For a Charitable Remainder Trust, the charity gets the remainder of the trust after the a beneficiary receives the income. There are two types: (1) Charitable Remainder Annuity Trust wherein the payments must be at least five percent of the trust’s initial value; and (2) Charitable Remainder Unit Trust wherein payments must be equal to at least five percent of the annual value of the trust’s property.

For a Charitable Lead Trust, wherein the charity is the income beneficiary and the remainderman is an individual beneficiary.

Speak with your attorney about the various ways you can create an estate plan to give to a charity.

DIGITAL ASSETS – HOW TO HANDLE THEM WHEN SOMEONE DIES

We all have heard of stories about someone dying and the family members not knowing how to access or are not permitted to access a person’s social media accounts, on line business accounts and other social or business dealings the decedent had on the internet. Also, when the decedent dies, there arises the question of how to account for these potential “digital assets,” revenue streams from among other sources, possible royalties, advertisement revenue and other types of payments. This article will explore the issues.

What are digital assets
The term digital asset is technically described as is anything that is stored in a binary format and comes with the right of use. Digital assets are classified as images, multimedia communications or textual information. Generally digital assets include:

electronic mails,
digital documents,
audible content,
motion pictures and videos, and
relevant digital files.

These digital assets can be found on your

personal computers,
laptops,
portable media players,
tablets,
storage devices,
telecommunication devices,
and any similar apparatuses.

Types of digital assets include, but are not exclusive to:

photography,
logos,
illustrations,
animations,
audiovisual media,
presentations,
spreadsheets,
word documents, and a myriad of other digital formats and their respective metadata.
Valuing Digital Assets

The majority of digital assets possess monetary and/or sentimental value.The most apparent type of digital asset that possesses a monetary value is an online bank account, the value of which is easily assessed. Other sorts of assets include but are not restricted to domain names, bitcoins or any other type of cryptocurrencies, electronic trading accounts such as eBay accounts, digital intellectual property and others.

Issues pertaining to Estates

There would be two reasons why you would need to access someone’s digital assets. One would be if the person becomes incapacitated. The other is when the person dies.
When putting your estate plan together you should review with your attorney your digital asset accounts, especially those that may be generating income such as royalties from e-books, advertising revenue from youtube, advertising revenue from ads place on your website, business activities and sites such as e-bay and jobs you have through the internet wherein monies are being held for you in possibly in a Paypal account or moneys that would be distributed to you held in an employer’s account for you.

Without you informing someone of your digital assets and revenue streams, moneys may become lost or unclaimed. Possibly you can prepare a digital log of where all the assets and income sources are. This would include photographs, videos and writings you may have on the internet in various accounts.

Further, if the instructions or distribution of specific assets are too cumbersome to put in a Will, you can provide written instructions to your executor about what you want to be done with the assets when you die. Possibly, you can take further steps by becoming familiar with the terms and conditions of each of your accounts and who can access them when you die. Draft an appropriate Will clause and consider appointing a specific executor to manage your digital assets.

Your executor will have to do a lot of detective work to investigate you bank statements, computer, mobile phones, emails accounts, Facebook, Linked In, You Tube, and other locations for your assets. Discusees these issues with your attorney to make sure your digital assets are discovery and any income stream you are entitled to receive becomes part of your estate.

IS MODIFYING AN IRREVOCABLE TRUST POSSIBLE? IF SO, HOW CAN IT BE DONE?

Suppose you created an irrevocable trust. You selected the trustee, the terms of the trust and the beneficiaries. Some years pass and circumstances change. You may no longer like the trustee you have selected, or want to change the terms or want to change the beneficiaries or add more beneficiaries. Lastly, the trustee or beneficiaries after you die may want to change the terms of the trust.

The question is whether or not you are able to do so. There may be a way to do it; but there are strict guidelines to do so. This article will review ways to change the terms of the trust.

How to make changes to the trust

There are a few ways how you can change the terms of the trust or no longer need to follow them:

1. Consent of All Parties;
2. By Order of the Court;
3. By the Trust Terms themselves; or
4. Decanting.

Obtaining Consent

One way to change the terms of the trust is to have everyone on board to do so. This would include the grantor when alive and the beneficiaries. If the beneficiaries are minors, you may have to obtain parental or a guardian’s consent or have the court appoint a guardian ad litem depending on the state. Full consent is necessary prior to making any changes.

Obtaining Court Approval

If not all are in agreement to amend the terms of the trust by consent, you may have to obtain court approval. If obtaining court approval is necessary, the petitioner has to show that:

– a change in circumstances warrant a change in the terms of the trust;
– the change would cause no harm to the beneficiaries; and
– the change does not contradict the grantor’s original request (especially if the grantor has deceased.)

Changing the terms based on the trust terms themselves

A review of the trust terms may actually allow for some flexibility in changing the terms itself. The terms may allow for a change in the trustee if all the beneficiaries agree along with the grantor if still alive. Possibly the terms allow for the trustee to petition the court to change the terms even if the beneficiaries do not agree when the grantor is deceased. The trustee would have to show that circumstances have changed or that the trust’s original purpose is not being carried out. Or a trust protector named in the trust has discretion to change the trustee. Before amending a trust, reviewing the terms first is always necessary.
Decanting

Another alternative to modifying or amending the trust is “decanting.” This is when a trustee transfers all or a portion of the principal of an irrevocable trust to another irrevocable trust that results in a change in the beneficial interests in the trust. Besides changing the beneficial interest the goal is to not subject the transfer to income, gift, estate and/or generation-skipping transfer taxes. In these transfers, the interest of one or more of the beneficiaries may be changed and, in some cases, the interest of a beneficiary may be terminated an/or another beneficiary who did not have an interest in the original trust may receive an interest in the receiving trust. Because the potential tax consequences as well as litigation risks, it is advised seek a professional’s advise when contemplating decanting.

Speak with your attorney about these issues prior to attempting to modify, amend, change the terms or decant the trust.