Trusts are powerful and versatile legal entities, allowing for asset protection, the elimination of conflicts of interest, minimizing tax liabilities, and the quick distribution of wealth before and after death.
Yet to perform any of these functions, trusts must be written and managed in a certain way. There is a lot that goes into developing and creating a trust to suit any given person’s individual needs and circumstances. Those needs and circumstances change over time.
Therefore, trusts are often amended. Trust amendments can help change provisions within the trust, remove or add beneficiaries, or alter trusts according to your changes in thinking over the years.
But when a trust begins to resemble its original form very little, it may be time to do more than simply amend it. A restatement of trust aims to re-establish a living trust with a complete revision, effectively rewriting the trust, and rendering its old version obsolete.
So, when is a restatement needed over an amendment? And when can trusts be restated or amended? To know this, we need to take a closer look at how trusts work, and how individual amendments are prepared.
Understanding Living Trusts
A living trust, as opposed to a testamentary trust, is one created while the testator or grantor of the trust is still alive. Testamentary trusts are created upon death, and there is no way to amend them based on the testator’s wishes. Therefore, most trusts being amended or restated will be living ones.
Trusts themselves require three parties. The creator of the trust is the grantor or trustor. The person inheriting the trust’s contents or receiving income through it is the beneficiary. The party managing the trust on behalf of the trustor and beneficiary is the trustee.
The document cementing these roles and the purpose of the trust is the trust document. This document will outline the way the trust must be managed and may include certain provisions, such as requiring the beneficiary to fulfill certain expectations before receiving their share of the trust.
Living trusts are revocable or irrevocable. Revocable trusts are amendable, while irrevocable trusts are final. The main difference is that a revocable trust does nothing to change your estate’s tax obligations, and while you fund property into your revocable trust to be managed for your beneficiaries, that property remains in your control until you die. Irrevocable trusts cut you off from the property funded into them, protecting these assets at the cost of control.
All trusts can be written to disburse their contents not only upon death but also upon incapacity. This allows you to provide an inheritance to your loved ones after a serious accident in a way a will would not, for example.
In addition, the quality of being invoked and managed while the grantor is still alive sets trusts apart from wills and is what makes them more difficult and expensive to manage. Trusts can be set up to begin managing assets and paying out income for years before the grantor’s death. A will, on the other hand, changes nothing about the way property is held or managed.
That expense can be well worth it when you consider what a trust can do for your estate. Trusts are far more versatile and flexible than wills, allowing you to withhold an inheritance from spendthrift dependents or immature beneficiaries until certain milestones are met, or manage wealth and provide a steady income for a disabled loved one.
Funding and Amending a Revocable Trust
Once a trust document is completed, witnessed, signed, and notarized, it must also be funded with the assets listed upon the trust. It usually is not enough to simply state each asset on the trust itself. As a grantor, you must amend the ownership documents for each asset or property named in the trust to finalize the transfer. This means writing trust deeds and amending certain documents.
In much the same way, a trust can also be amended. If your wishes or priorities change over time, you must create an amendment to reflect these wishes. Things you can do with a trust amendment include:
- Adding or removing assets and bequeathments.
- Altering a beneficiary’s name due to marriage or divorce.
- Changing the trustee or adding a successor trustee.
These changes must be signed and submitted much the same way the original trust document was created. Once submitted, they become part of the original document, like a grafted plant.
Amending vs. Restating a Trust
Too many amendments can begin to muddy the waters, complicating the trust, and making it difficult for a trustee to do their job. As you change the contents of the trust and amend the beneficiaries attached to it, a trustee may begin to lose track of your changes or may be bogged down by an unnecessarily complex list of changes over the years.
When an amended trust document scarcely resembles the original intent of the trust, or when you stand at the cusp of a total overhaul of your trust, it is easier and smarter to simply retool the entirety of the trust document through a complete restatement of trust.
A restatement of trust is equal to revoking and recreating the trust from scratch. A completely new document takes its place.
When Do You Need a Restatement of Trust in California?
You may want to consider a restatement of trust when you feel the need to change the trust’s contents, intent, trustee, and beneficiary at the same time, or at least wish to completely recontextualize the trust’s purpose.
Perhaps you no longer feel like your beneficiaries need a trust that holds their inheritance until they’ve fulfilled a certain task, or you’ve changed your mind about who gets what, to the point that your newly proposed changes barely resemble the original.
One of the benefits of simply restating a trust over revoking and creating a newly named trust is that you need not alter any ownership documents for assets already funded into the old trust, as you are not changing the trust’s name. You do, of course, need to fund new assets into your trust if adding assets is part of your restatement of trust. Similarly, assets taken out of your trust will need to be amended accordingly.
What About Irrevocable Living Trusts?
Irrevocable living trusts cannot be amended or restated without invoking the powers of a third-party trust protector, or the judge of a court. If you wish to redo an irrevocable trust, you must typically have it terminated first.
A trust can be a substantially powerful tool for your estate plan. But that tool becomes a burden if it no longer aligns with your wishes. Be sure to revisit and revise your plan every few years, to ensure that it coincides with what you want for yourself and your loved ones.