Trusts can be a powerful legal tool if you know how to implement them. A trust allows you to safeguard assets from creditors and better prepare your estate for the event of your death, and your incapacity. Furthermore, trusts sidestep the probate process, which can take well over a year under certain circumstances.
But trusts, like any other estate plan, should not be set in stone too early. Every iteration of your estate plan should be treated as your last – but remind yourself to review and alter your estate plans frequently, either once every few years, or with every lifechanging event, from breakups and estrangement to adoption, birth, and new unions.
Whether or not you can amend your trust, and the exact process for doing so, depends on what kind of trust you have set up. Understanding exactly how trusts work and what the differences are between common trust types can help you get a better grasp of your estate planning options and expand your possibilities.
Here’s everything you need to know about trust amendment requirements in California.
Amending a Living Trust in California
Nearly all trust documents can be amended. However, some are easier to amend than others. In the case of a revocable living trust, amendments usually take on the form of additional documents written after the original trust document has been signed and notarized.
These amendments do not need to be notarized to count, but they do need to be witnessed and signed, or at least created holographically (in the grantor’s handwriting, with the grantor’s signature). That being said, notarizing your amendments creates a better paper trail and makes your amendments more legitimate.
If you continue to amend your trust over time, especially if your amendments begin to overwrite each other – it might be in your best interest to revoke your old trust and recreate it, incorporating all changes.
What About Irrevocable Living Trusts?
Irrevocable living trusts are not just hard to revoke – they are also very difficult to amend. You can alter an irrevocable trust under very specific circumstances. These include:
- When the trust no longer serves a purpose (perhaps the assets originally listed in the trust have been destroyed).
- In cases where the terms of the trust would impair the material purpose of the trust, or cases where it would be illegal, wasteful, impractical, or impossible to fulfill the terms of the trust.
- Circumstances under which the terms of the trust are not in the beneficiary’s best interests.
In most cases, you need a court’s approval to amend or revoke an irrevocable trust. The trustee must petition the court to make an appropriate change.
How Does a Trust Work?
A trust is a legal agreement ratified by a respective trust document, and in some cases, an accompanying asset list. Trusts are, first and foremost, meant to separate property from the grantor and place it in trust for a beneficiary, or several beneficiaries.
In most cases, trusts are set up so the grantor (or trustor) can continue to manage the contents of the trust as trustee, while naming a secondary trustee to take over after death.
Certain trusts may be built through generational wealth, lasting longer than some lifetimes. Large trusts built for charitable purposes, for example, may spin off into foundations, and may continue to receive funds and make contributions to other organizations over several lifetimes.
This inherent flexibility in the definition and purpose of a trust is what makes them such a powerful and unwieldy legal tool. In the hands of a professional, a trust can do exactly what you want it to, whether that means continuing your personal legacy of philanthropy, or creating an incentive for your grandchildren to pursue the family business. On the other hand, DIY trusts are often more trouble than they’re worth.
Unlike a will, which goes into effect upon the will creator’s death, a trust goes into effect the moment it is witnessed, signed, and notarized. And unlike a will, which is immediately resolved upon a person’s death through probate, trusts can continue to manage the assets imparted upon them for years, even decades.
The exception to this rule is the irrevocable trust. These trusts are usually built to separate a trustor from the contents of their trust, for tax or asset protection purposes. A trust designed with a trustor’s control still intact will mean that the contents of the trust count towards the trustor’s estate value, which can trigger state or federal estate taxes after death. Irrevocable trusts may be an option for grantors who wish to remove assets from their estate without giving them away, and incurring the resulting gift tax.
As the name implies, irrevocable trusts are much harder to amend than the conventional revocable trust.
What is a Living Trust?
Trusts are either living or testamentary. The vast majority of trusts written today are living. Most estate planning attorneys see little reason to recommend a testamentary trust. The primary difference between the two is that testamentary trusts become active upon the grantor’s death.
However, a testamentary trust is written into a will. This means that the grantor’s relatives or attorney must petition for probate, and initiate the probate process to legitimize the will and execute the trust. Any property fed into a testamentary trust will often go through probate first, relinquishing one of the biggest benefits of a living trust: skipping probate for large, complicated, or important assets.
As the name implies, a living trust goes into effect while the grantor is still alive. Living trusts are flexible and bring great benefits to a grantor long before they pass away.
Do I Need a Revocable or Irrevocable Trust?
Revocable and irrevocable trusts are both powerful tools, and in the right hands, allow you to do transformative things with your financial legacy. But when misused, trusts can be wasteful. It is in your best interest to consult with an estate planning professional before you implement a trust of your own into your estate plan.