Even the best laid plans can face unexpected bumps. So what happens when a trustee or beneficiary needs to alter the language of an irrevocable trust and can’t turn to the settlor for help because he or she may now be deceased? The answer is a legal proceeding known as a trust reformation.
Try as they might, the settlor of an irrevocable trust and their advisors aren’t always going to be able to prepare for every bump in the road, if for no other reason than they can’t foretell the future. Still, even after the ink has dried and the trust has survived the settlor, it doesn’t mean that every detail of the trust is set in stone and if change is needed it can sometimes be achieved with a trust reformation. I stumbled across an article on Smart Business the other day discussing the possibility (an interview with Mark Sales, of Dykema Gossett PLLC) so I thought I’d share it here.
A trust can’t be changed for just any reason – many of us wouldn’t care to use them if they could – but the laws restricting such changes have been growing more inclusive. Usually when a trust needs to be reformed it is in order to account for unanticipated changes or unclear language. A powerful example would be if the settlor made his daughter beneficiary and her husband trustee and they later divorced, making for an impossibly awkward administration of the trust. But in general, any change that would clarify or expedite the administration of the trust, and working to the benefit of all involved parties, might be an admissible purpose for reformation.
The process is not entirely simple as there are a number of legal folds, especially if a family business is part of the trust or if there is a charitable remainder function to it. The most complicated parts, however, tend to be emotional as trusts can dredge up family tensions. It is imperative that the process is entirely open and that all parties are kept on the same page and willfully putting change into place. The original article discusses more of the possible hazards to face – legal and emotional – but in the end it is your own legal counsel that will have to determine the possibility of reformation and to put them into place.
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Reference: Smart Business (August 1, 2011) “How the Reformation of a Trust Can Benefit the Trustees and Beneficiaries”