Creating a trust is one of several ways folks can pass on the fruits of their hard work to family, friends, and business partners and has the added bonus of being able to avoid the time consuming and costly process of passing those assets of the estate through probate. With a trust, the creator names a trustee, beneficiaries, and how the trustees are to manage the trust. It is important to know that there are different types of trust, which can severely limit the creator’s control over the trust while he or she is alive.
A revocable trust is just that, one that can be altered or done away with during the lifetime of the creator for whatever reason he or she sees fit. Common reasons for changing a revocable trust can be related to life changes like getting married, divorced, having children, or financial changes. Many times, grantors create revocable trusts because they are malleable but some estate planning choices require the grantor create an irrevocable trust that does not allow he or she to make alterations.
When a grantor creates an irrevocable trust, he or she transfers assets to the trust and effectively lose ownership or control over them. One of the main benefits of this type of trust is to shield assets from creditors since the assets and any income associated with them no longer belong to the debtor. Irrevocable trusts can also be useful to spend down assets to qualify for Medicaid which is granted only to those with small amounts of assets.
But what if a grantor needs to alter an irrevocable trust or do away with it completely? In these instances, New York trust and estate law does allow limited circumstances where the creators of irrevocable trusts can alter these arrangements if he or she receives obtains the informed, express consent permission of the beneficiaries. If the beneficiaries are minor children, the grantor need only show that the alterations are for the benefit of the beneficiaries.
The other instance where New York estate laws allow trustees to alter an irrevocable trust is to transfer assets to another, newly created trust if the language of the original trust gives them the authority to do so. These transfers are valid in cases where the irrevocable trust is created for the income benefit of the beneficiary and the grantor must be able to show the beneficiary’s income is not reduced.