How to Terminate an Irrevocable Trust

By Larissa Bodniowycz, J.D.

How to Terminate an Irrevocable Trust

By Larissa Bodniowycz, J.D.

After you designate a trust as irrevocable and then execute it, you usually cannot modify or terminate it. However, there are a few exceptions that allow the creator to modify or revoke it. It is a legal device used to manage the distribution of your assets after your death. It ensures your assets go to specific individuals, referred to as beneficiaries. The person who creates it is the settlor or grantor. The individual in charge of managing the assets and carrying out its purpose is the trustee.

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The settlor can design a trust as revocable or irrevocable. One that is revocable has greater flexibility in terms of modifications and additions, as the settlor can make changes to it during their lifetime. But an irrevocable document can only be modified under limited circumstances.

Changing an Irrevocable Trust

There are some exceptional circumstances, however, that provide a way to modify or revoke this legal document. The most common involve beneficiary approval, judicial approval, special terms in the agreement, and complete disposition of its assets.

Beneficiary Approval

In some states, you may be able to change the terms if all of the beneficiaries unanimously approve it. First, you'll have to contact the beneficiaries and ask them for approval. This might be difficult. They may not want to consent to relinquishing their assets. It is even more difficult to obtain consensus if there are a lot of beneficiaries or if some are difficult to locate.

Next, you'll have to obtain court approval. Even if all the beneficiaries agree, you may also need court approval to ensure modifying or terminating it does not violate a material purpose of the settlor. Lastly, you'll have to create a legal document that formally revokes or modifies the terms. This last step can also be time-consuming and expensive.

Judicial Approval

You may also seek court approval to modify or terminate it. The trustee and/or the beneficiaries may petition the court for judicial modification. This may be appropriate in situations where it becomes unreasonably expensive to administer, if it can no longer serve a viable purpose, or if the purpose has become illegal.

For instance, if you create a charitable irrevocable trust and choose to leave your assets to a particular charity, but that nonprofit later becomes defunct, the trustee or beneficiaries can petition the court to name a different beneficiary or terminate it entirely.

Terms Within the Agreement

In some situations, the agreement itself might include instructions allowing you to modify it under limited circumstances. You should consult with an estate planning attorney to ensure you do not improperly violate its terms.

Complete Disposition of Assets

If beneficiaries have already accepted all of the designated property, it no longer serves any purpose and is effectively terminated. The trustee should nonetheless follow through with formal steps to dissolve it.

Although it is possible, revoking, or modifying an irrevocable trust is not easy. The best way to avoid having to try to make changes is to take time and speak to the other parties involved when creating it.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.