Overview of Irrevocable Family Trusts
An irrevocable family trust involves the holding of property for the benefit of one or more relatives. The person creating the trust, referred to as the settlor, has complete discretion in determining which family members to include in the trust; these persons are referred to as the beneficiaries. The settlor deposits property into the trust, which is then distributed to the beneficiaries by the trustee according to the specific instructions as described in a written trust instrument. The trust is said to be irrevocable because the settlor has no authority to modify or terminate the trust after its creation.
Once an irrevocable family trust is created, Massachusetts law requires that the trustee keep the beneficiaries informed. Specifically, within 30 days after his appointment, the trustee must provide his name and address to the beneficiaries listed in the trust instrument. The trustee is also required to furnish a statement of accounting covering all trust property to the beneficiaries on a yearly basis, or upon request. Failure to follow the notice requirement can result in removal of the trustee.
Modification and Termination
In Massachusetts, if all beneficiaries and the settlor consent, the trust instrument may be modified or terminated even if the action conflicts with the reason the trust was created, referred to as the "material purpose" of the trust. An example might be a trust created to support a settlor's children through college. If all parties agree, the trust could be modified or terminated while a beneficiary is still in school. In addition, the court may allow the modification or termination without the consent of all the beneficiaries if the court is satisfied that the interests of any non-consenting beneficiary are protected. An example might be if the beneficiary still in college has sufficient resources to support himself. In addition, state law allows modification or termination of the trust without the consent of the settlor, provided all beneficiaries consent and the change does not conflict with the material purpose of the trust.
Massachusetts law also allows the termination of an irrevocable family if the total value of the trust is so low that continuing to operate the trust becomes impractical. By law, a trustee is authorized to terminate a trust if its value is less than $200,000 and the administrative costs make it no longer possible to effectively carry out the trust's terms. In addition, a judge may terminate a trust or order appointment of a new trustee for a trust of any value if the court determines that the administrative costs relative to the value of the trust require this action.