You may have heard of a revocable living trust (RLT), which is a commonly used estate planning solution. But what exactly are they, who is affected by them, how can they be changed, and what do they accomplish? What Are They?

Part 2 - How Can They Be Changed?

If circumstances change, as they often do, you can alter the RLT through amendment, restatement, or revocation. Typically, a trust amendment can be made by attaching a properly drafted and executed amendment to the original trust document. An amendment may be appropriate for minor changes or deletions, such as replacing a successor trustee. If more significant changes are needed, such as changing beneficiaries of the trust, or if the trust has already been amended multiple times, a document called a restatement of trust should be created. This document allows you to “restate” or rewrite the entire original trust agreement incorporating any necessary changes instead of revoking the original trust and creating and transferring assets to a completely new trust.  There are circumstances that neither an amendment nor a restatement are appropriate, in which case you can revoke the trust. A revocation may be warranted if a major change such as a divorce or death of a beneficiary occurs and involves dissolving the trust entirely and transferring the assets owned by the trust back to yourself or into another trust.

The law of most states provides that changes should be made according to instructions provided in the trust document, or if there are no instructions, in a way that clearly evidences your intention to make the changes. For example, if you amend the trust, you should create a written document, signed by the grantor and trustee, with a title that shows it is an amendment to the specific trust you are amending. The document should set forth the trust’s name, the date, and the name of the trustee. It should also mention the portion of the trust document that allows amendments to be made and should identify the part of the trust that will be changed, deleted, or added. If there is more than one grantor and the changes are made by fewer than all of them, notice should be provided to the grantors who did not participate in the changes.

Warning: If the trust has grantors who are spouses or domestic partners, and the trust document does not provide otherwise, most states have special rules regarding changes:

• If the trust owns community property—which, according to the law of some states, consists of all the money earned, property acquired, and debts incurred during a marriage, the trust can be revoked by either spouse or partner, but can only be amended by both of them.
• If the trust consists of separate property—defined as property owned by one spouse and not the other, regardless of whether it was acquired during the marriage, either spouse or partner can amend or revoke the trust without any action or approval of the other one with regard to the portion of the property attributable to their contribution.
• In most states, the character of the property interest as community or separate property is not altered when it is transferred to or from a revocable trust.

Joint property, that is, property you own with another person, can also be placed in an RLT. You can put your own interest in jointly owned property in a revocable trust without affecting the rights of other joint owners. Spouses can create a living trust to hold both joint, community, and separate/individually owned property, in which both are grantors and trustees, and which either of them can amend or revoke during their lifetime. In fact, each spouse should be given the power to withdraw his or her separate property at any time without the consent of the other spouse to avoid possible gift tax liability.

Want To Know More?
Navigating an RLT can be confusing, but we are here to help.  If you are concerned about protecting your assets, we can help you. Click here to email us or call us at 309-807-2885 for your FREE 15-minute consultation.