Can an Irrevocable Trust be Amended? - Part 1

Like many things in life, estate planning has many little quarks and nuances that can almost be contradictory in nature. One of the more interesting contrasts is the fact an irrevocable trust is not as “irrevocable” as you would think. Depending on the situation, an irrevocable trust can be amended or changed to reflect circumstances that the grantor might not have foreseen generating the need to change or terminate the trust.

But, let's take a step back. An irrevocable trust is one that generally cannot be modified or revoked by the person who creates it, otherwise known as the settlor or grantor. A grantor establishes an irrevocable trust to gain the dual benefits of reducing the grantor's estate tax liability while simultaneously transferring wealth to loved ones. In return for these benefits, the grantor gives up the right to amend or revoke the terms of the trust. This drawback, however, is not as restrictive as it may seem.

Situations can arise that might give reason to alter the irrevocable trust to reflect those changing circumstances. Typically, the trustees or beneficiaries of an irrevocable trust can modify the trust as long as the changes contemplated do not conflict with a material purpose of the trust as envisioned by the grantor. For example, one of the more frequent changes to an irrevocable trust is replacing the trustee.

The first step is to always look at the irrevocable trust itself. The trust document might provide instructions in how the trust can be modified. Many trusts will include clauses instructing how a trustee of an irrevocable trust can be replaced. Many times replacing a trustee will be determined by the nature of the trust and the terms of the document itself. Relevant language to look for includes a statement about which state's laws govern the trust, the approval by a trust protector or any explicit instructions about changing the trustee.

Another way an irrevocable trust can be altered is by consent. In this case, the beneficiaries and grantor, if the grantor is alive, agree to modify the trust to account for some unforeseen issue. If the grantor is no longer living, then the consenting beneficiaries will be required to petition the court to amend the irrevocable trust. Some states even allow for the modification of an irrevocable trust when not all the beneficiaries agree. D.C. Code Section 19-1304.11(e) states that the court may grant modification or termination of an irrevocable trust without uniform consent if (1) the trust could have been modified or terminated under this section if all of the beneficiaries had consented; and (2) the interests of a beneficiary who does not consent will be adequately protected. "Adequately protected" is generally defined as providing the non-consenting beneficiary money to satisfy their reasons for non-consent.

Surprisingly, there are more ways than you would think to modify or terminate an irrevocable trust, and I will get into those ways in next month's piece.

Basics of Estate Planning: How Do I Get a Will Out of Safe Deposit Box?

When clients complete their estate plans with me, I provided a long instruction letter about where to keep their estate plan. One of those options, among the many, is placing the documents in a safe deposit box. One of the biggest positives for a safe deposit box is the restricted access. One of the biggest negatives for a safe deposit box is the restricted access. It is quite the double-edged sword, and this article will focus on how to access a safe deposit box if decedent’s will is stored in one and can’t be opened.

In the typical safe deposit box arrangement, a renter pays the bank a fee for the use of the box. The box can only be opened with presentation of some form of identification, the renter's assigned key, the bank's own guard key, and the proper signature. Sometimes, a code needs to be presented like in "The Da Vinci Code.

You can see where this might become an issue if the renter is deceased and the only owner. If this is the case, then the deceased renter is the only one granted access to the safe deposit box. Upon the death of the renter, the only person that would have the power to access the safe deposit box is the renter’s personal representative (“PR”). But, if the renter’s last will and testament that directs the Court to appoint and empower the PR to administer the estate is stored in the safe deposit box, then the PR doesn’t have the power, yet, to access the safe deposit box to get the will to get the court to appoint them PR. You can see this becomes a probate merry-go-round.

Needless to say the court doesn’t like when a decedent executes a will, but it can’t be accessed. Thus, all states have created provisions allowing for a person that will become the PR to petition the court granting the potential PR access to the safe deposit box. Naturally, each state in the area has slightly different procedures governing how access is gained to a decedent’s safe deposit box.

In D.C., under Code § 20-531 and D.C. SCR-PD 7.1, a petition) can be filed by an interested party, a creditor, or the Register, or upon the motion of the Court. The Court may appoint a special administrator to access the safe deposit box to examine if the decedent’s will is in the safe deposit box. If a will is found in the box, it is taken to the Court for filing. If no will is found, the safe deposit box is sealed until the appropriate PR is appointed. It is important to note that you do not have to be the person that becomes the eventual PR to file the petition to access the deceased renter’s safe deposit box.

Maryland has similar rules to D.C. In Maryland, the potential PR files a limited order to locate a will in the county in which the deceased renter resided in upon the renter's death. It is important to note that this might not be the same county where the safe deposit is located. Upon approval of the limited order by the Court, the potential PR and the Register of Wills arrange to meet at the location of the safe deposit box and proceed to open it under a similar process as D.C.

Virginia's rules to access a safe deposit box are slightly less rigid. Under VA Code § 6.2-2302, the bank may permit limited access to the safe deposit box by the spouse or next of kin of the deceased renter, a court clerk, or other interested person for the limited purpose of looking for a will or other testamentary instruments. The bank may require proof of the renter's death, like a death certificate, and a bank representative may be present during the review of the safe deposit box unlike when a normal person access's their safe deposit box.

Safe deposit boxes can help secure important personal documents, collectibles and family heirlooms. But it's important to make wise decisions about what goes in the box and to stipulate who has access to it because you could end up causing additional costs to your estate if you don't.

Estate of the Month: Frank Gifford

As many of you know, I have a strong passion for football and like to use the pitfalls of deceased NFL players’ estates as examples of what not to do in estate plan. NFL Players have failed to account for estate taxes (Steve McNair), dying intestate and with improper joint tenancy ownership (Sean Taylor), and questions on witnesses to the execution of a will (Gene Upshaw). Not even NFL owners are spared from making mistakes in their estate planning. (Tom Benson). On August 9th, another football great, Frank Gifford died and his will was recently filed with a Connecticut probate court and providing more evidence on the wisdom to create a trust.

Frank Gifford spent most of his life in and around the NFL. He had a 12-year playing career as a running back and flanker for the New York Giants and was inducted into the NFL Hall of Fame in 1977. He also had a successful post-NFL career becoming a play-by-play announcer and commentator for 27 years on ABC's Monday Night Football. He also exhibited sport casting ability beyond football by announcing for Wide World of Sports and the Olympics.

At his death, he was married to Kathie Lee Gifford and had 5 children – 2 (Cody and Cassidy) with Kathie Lee Gifford and 3 (Victoria, Jeffery and Kyle) with his first wife and college sweetheart, Maxine Avis Ewart. His probate estate was valued at approximately $10 million, though the value of non-probate real property and other assets could push the entire estate’s value to $40 million. But, it is the difference in where his inheritance goes that demonstrates his need for a trust. Gifford carved out $500,000 each for Victoria and Jeffery. He also put $1 million in a trust fund for Kyle, who was seriously injured in a car accident several years ago.

It is interesting to compare the amounts given to his first 3 children when Gifford also bequeathed $300,000 to Christine Maria Gardner. Ms. Gardner was Cody and Cassidy’s nanny and subsequently became the personal assistant to Kathy Lee. The remainder of Gifford’s estate went to Kathy Lee. To further demonstrate the unbalance, Gifford’s will stated that Cody and Cassidy would inherit his money, property and possessions had Kathie Lee predeceased him. Thus, no portion of that part of Gifford’s estate would have gone to Victoria, Jeffery and Kyle.

There is nothing inherently wrong with treating your children differently when your estate is distributed. This type of in balance between children is quite normal in instances of second (or third marriages in Gifford’s case). Perhaps Gifford provided for his other children in another way like through life insurance. But, it does come off smelling not right when information of favoritism is displayed in the headlines for everyone in the world to see.

The appearance of favoritism for Cody and Cassidy over Victoria, Jeffery and Kyle could have easily been avoided. All Gifford would have had to do is create a trust. A fully funded trust would have kept the distribution terms private and not splashed across the tabloids.