Can an Irrevocable Trust Be Reversed?

by David Carnes
It sometimes takes a court order to revoke an irrevocable trust.

It sometimes takes a court order to revoke an irrevocable trust.

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A trust is a legal vehicle that allows you to place assets under the control of a trustee, and have your trustee distribute these assets to your beneficiaries. Two type of living trusts are possible -- revocable and irrevocable. An irrevocable trust is difficult but not impossible to revoke or terminate. Although state laws differ, the basic principles of irrevocable trusts are the same in every state.

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Overview of Irrevocable Trusts

You can create an irrevocable trust by drafting and signing a trust instrument that names a trustee and at least one beneficiary, and instruct the trustee how to distribute trust assets. You must then transfer assets into the trust, which means that you must transfer title to titled assets such as real estate. Your trust instrument should clearly state whether the trust is revocable or irrevocable. Some states assume that a trust is revocable unless the trust instrument states otherwise, while other states assume that it is irrevocable unless the trust instrument states otherwise.

The Uniform Trust Code

The Uniform Trust Code is a model law, drafted by the National Conference of Commissioners on Uniform State Laws, that individual states are free to adopt or reject. Many states have adopted at least portions of the Uniform Trust Code. The terms of the Uniform Trust Code allow an irrevocable trust to be terminated under certain circumstances. Many states that do not use the Uniform Trust Code still allow irrevocable trusts to be terminated under certain circumstances.

Automatic Termination

Often, the trust instrument may include a provision that automatically terminates the trust at a certain point. The trigger might be an event, such as the death of the founder of the trust, or a particular date. If the trust automatically terminates, its assets must be distributed according to the provisions of the trust instrument if any such provisions exist, or in a manner consistent with the purposes of the trust.

Termination By Consent

Continuation of the trust may no longer be necessary to achieve its purpose. A trust might be established, for example, to provide financial support to a disabled child who later dies. In such cases, a state court may terminate the trust if the settlor and all beneficiaries agree. Some states, such as Ohio, allow termination by consent under some circumstances even if the termination is inconsistent with trust purposes. State laws also contain provisions for termination by consent if, for example, the settlor is dead, or if an infant beneficiary is incapable of giving consent. Typically, trust assets must be distributed as agreed by the beneficiaries.

Termination of an Uneconomic Trust

In some cases, it might not make economic sense to continue a trust. Trust assets, for example, may be small in comparison with the costs of administering the trust. In this case, the laws of many states allow the trustee to petition a state court to terminate the trust. If the court accepts the petition, the trustee must distribute trust assets in a manner that is as consistent as possible with the purposes of the trust.