Trusts, whether revocable or irrevocable, can be a crucial component of your estate plan, allowing you to manage and protect assets for yourself, your family, or other designated beneficiaries. However, modifying an irrevocable trust (as the name might imply) can be tricky.
Understanding trusts and when to consider modifying one is essential for effective estate planning. If you have questions about modifying a trust in North Carolina, contact attorney Ryan Stump at Charlotte Estate Planning.
Call (704) 766-8836 or contact us for a free consultation.
What Is an Irrevocable Trust?
While revocable living trusts offer more flexibility, irrevocable trusts have stronger asset protection and minimize estate tax obligations. The assets used to fund an irrevocable trust are not included in the grantor’s taxable estate and the assets pass outside of probate. The trust document itself clearly outlines how and when the estate should be distributed.
In an irrevocable trust, the grantor (the individual who creates a trust) relinquishes control of the assets they transfer.
By design, the terms of an irrevocable trust generally cannot be amended or revoked after it’s established. However, there are limited and specific circumstances when an irrevocable trust can be amended or modified.
What Is a Revocable Trust?
Unlike an irrevocable trust, the grantor of a revocable trust can change or terminate their revocable living trust at any time during their life. This includes modifying the assets in the trust, when beneficiaries receive assets, who will serve as successor trustee, and more. The assets used to fund a revocable trust also pass outside of probate, but unlike an irrevocable trust, a revocable trust does not offer the same creditor protection and estate tax planning benefits.
While a revocable trust can be easily amended or revoked during the grantor’s life, the trust does become irrevocable when the trustor dies and is administered per the terms of the trust document moving forward.
When Should You Modify a Trust?
You could encounter several situations where it may be necessary to modify a trust, such as:
- Economic Considerations – if the trust’s assets aren’t generating sufficient income or lack liquid assets to cover maintenance costs, the trust can be modified or terminated.
- Correction of Errors – mistakes made in the writing of the trust can be grounds for modification.
- Significant Changes in Circumstances – if the trust’s original purpose is no longer relevant due to unforeseen changes, a modification might be necessary.
- Tax Law Updates – you may wish to modify the trust after a tax update which could affect your tax planning strategies. That includes events like the unintended triggering of capital gains tax upon the death of a beneficiary.
How to Modify a Revocable Trust in North Carolina
Modifying a revocable trust is typically more straightforward than changing irrevocable trusts because the trustor retains more control.
Revocable trusts are often changed through one of two methods: amendments and restatements.
Amendments are generally used to make smaller changes and are advisable if you need to change a single thing. Using multiple amendments can become confusing, especially if the person administering your trust isn’t clear on the latest version.
Restating the trust involves rewriting the original. It doesn’t require you to create a new trust from scratch. You can revoke the trust and start fresh if you wish, but restating eliminates the need for funding the trust again.
How to Modify an Irrevocable Trust in North Carolina
You generally can’t modify the core purpose of an irrevocable trust. You can make updates that are typically limited to modifications regarding:
- Administrative provisions such as trustee compensation and general day-to-day management of the trust.
- Distribution details such as age contingencies or adjusting distribution amounts.
North Carolina law outlines several scenarios and options for modifying an irrevocable trust.
Mutual Consent
North Carolina General Statutes § 36C-4-411 states that a trust can be modified or terminated if all possible beneficiaries unanimously agree in writing. Getting consent from every beneficiary can be challenging, especially in situations involving minors or incapacitated individuals.
However, North Carolina law has provisions for scenarios like these. For example, a parent may give consent on behalf of their minor children.
Decanting
The terms of an irrevocable trust agreement can be overridden through decanting. Here, the assets from one trust can be transferred to another with more favorable terms. Decanting is commonly done in response to tax law updates or special needs provisions.
Judicial Amendment Through a Court Order
In many cases, you don’t need a court order to modify a trust. But the court can step in if the trust’s grantor is deceased when changes are proposed, or a beneficiary doesn’t consent to the modification.
In a judicial trust modification if the grantor is deceased, a judge will review the modification and the circumstances of the beneficiaries.
Then, they will determine whether a modification is in their best interests and consistent with the core purpose of the trust.
Terminating an Uneconomical Trust
An irrevocable trust can be terminated if its assets have a value of below $50,000 if a trustee concludes that value doesn’t justify the cost of administration.
The remainder of the trust can be distributed among qualified beneficiaries.
Modifications by a Trust Protector
Some trusts establish a role called a trust protector. This is an independent person who is authorized to oversee the trust and make certain changes such as terminating the trust, removing or appointing successor trustees, and granting powers of appointment to beneficiaries.
In North Carolina, a trust protector has a fiduciary duty, meaning they have a legal obligation to act in the best interests of the trust and its beneficiaries. Including a trust protector is something an attorney can advise during the trust creation process.
Trust Modification FAQs
What is a “wasting trust” and can they be modified?
A wasting trust is one in which the assets and income don’t support the expenses of maintaining it. In North Carolina, these are known as uneconomic trusts and can be modified or terminated by the court.
Can a trust modification be challenged?
Yes, a trust modification can be challenged by interested parties such as beneficiaries, heirs, and other individuals with a vested interest in the trust. Challenging a trust modification typically involved filing a petition with the court, where a judge will have the final say.
How long does it take to modify a trust?
The time it takes to modify a trust in North Carolina can vary significantly. Factors like the significance of the changes, whether the interested parties unanimously agree, and the court’s caseload can change the modification timeline.
Call Charlotte Estate Planning Today for Help with Trust Modification
You have options to modify a trust in North Carolina, but the requirements vary depending on what changes you’re seeking and the type of trust you’re working with.
If you’re ready to seek a trust modification or have more questions about the process, Charlotte Estate Planning is here to help. Working with a trust attorney is the best way to ensure updates are made efficiently and in full accordance with state law. We’ll review your trust, determine what modifications should be made, and guide you through the process of completing them.
Call (704) 766-8836 or contact us today to schedule a free consultation.
