It’s not uncommon for the successor trustee to find themselves at the center of trust disputes since they wield the most control over trust assets. But, how much power can the successor trustee actually exercise when it comes to administering a decedent’s trust? Can a trustee change the terms of a trust, or do trusts become irrevocable after the settlor dies?
This blog post will discuss the legal complexities surrounding the question of whether a successor trustee has the right to change a trust after the settlor’s death. If you are a successor trustee who is unsure about whether the trust you oversee allows you to execute amendments or revoke the trust, it is recommended you consult with a trust and estate administration attorney, who can review the terms of the trust to help provide clarification to you about the specific powers you’ve been granted as the trustee.
How Do Trusts Work?
Whether you are a trustee or beneficiary, it’s crucial you take the time to understand how a trust works after someone dies.
Trusts generally involve three parties: the trust creator (known as the settlor, grantor or trustor), the trustee (i.e., the overseer of the trust) and the trust beneficiaries (i.e., the persons for whom the trust was created).
When a settlor executes a trust, they will usually fill all three roles themselves, which enables them to control all aspects of their trust during their lifetime. When they die or become incapacitated (i.e., lose mental competence), the person whom the settlor named as the successor trustee will take over management of the trust and administer it according to its stated terms.
During trust administration, the successor trustee will fulfill a number of trustee responsibilities, including paying creditors (when applicable), preparing trust accountings and making trust fund distributions to beneficiaries.
What Is the Job of a Successor Trustee?
Because the assets in a trust will be managed and controlled by the successor trustee after the settlor dies or loses competence, settlors usually don’t just nominate anyone to the role; they nominate someone they trust or, in some cases, a private professional fiduciary.
Successor trustees are bound to executing the trust according to its terms. In other words, they must distribute trust assets to beneficiaries in the exact manner prescribed by the trust instrument.
A trust generally becomes irrevocable following the settlor’s death or incapacitation. This means the trust cannot be further amended or revoked. But does this rule apply to trustees? Can a successor trustee change a trust? What if a trust does not become irrevocable upon the settlor’s death? Can a trustee change the terms of a revocable trust?
Can a Successor Trustee Change a Trust?
Administering a trust is no easy feat. Because of the sheer number of trustee responsibilities, it can be tempting for trustees to take shortcuts. Perhaps the terms of the trust provide for trust fund distributions to be made annually to the beneficiaries of the trust on the death anniversary of the settlor, but the successor trustee decides to distribute trust funds to beneficiaries as lump sums. Would this be allowed since, technically, the trustee did provide each beneficiary with their correct share of the trust, just not in the manner prescribed?
Are there any legal justifications for a successor trustee to try to change a trust? Can a successor trustee change a trust to streamline trust administration? Can the successor trustee change a trust to remove a beneficiary they believe to be undeserving of an inheritance? Can a trustee change the terms of a trust if doing so would be to the advantage of the trust beneficiaries?
When discussing the right of a successor trustee to change a trust, it is important to note that most trusts become irrevocable following the death of the settlor. This means that not only can the successor trustee not change the trust, but the beneficiaries of the trust and the decedent’s heirs cannot, either. While the successor trustee can generally exercise a considerable amount of power in selling trust assets and/or making investments on behalf of the trust, they are usually not entitled to revoke or amend the trust’s terms in any way. Most successor trustees, for example, cannot remove a beneficiary from a trust or alter the amount of a beneficiary’s inheritance.
There are, of course, exceptions to this rule. Under certain circumstances, the successor trustee may be entitled to amend or revoke a trust. These circumstances will be covered in the following subsection.
Under What Circumstances Can a Successor Trustee Change a Trust?
Before beginning administration, it would be a good idea for the successor trustee to work with a probate attorney to interpret the terms of the trust so they can understand what their powers entail, including whether or not they have the power to change the trust.
Unless successor trustees have been told otherwise by their attorney, they should err on the side of caution and assume they do not have the power to change the trust, since the majority of trusts become irrevocable after the settlor’s death.
That said, there are circumstances under which the successor trustee may be able to make changes to a trust. These circumstances are described below.
Trust Contests
Suppose a settlor was diagnosed with dementia toward the end of their life. Around the same time as their diagnosis, they executed a trust amendment that drastically changed the terms of their trust. In the previous version of the trust, the decedent’s children stood to receive all the trust assets. In the amended trust, the decedent’s surviving spouse, who they married shortly before dying, stands to receive all the trust assets.
In this example, the conditions under which the decedent amended the trust point to possible undue influence, fraud, duress or another form of elder financial abuse. As a result, anyone with standing (i.e., the successor trustee, trust beneficiaries or the settlor’s heirs) generally would be able to bring a type of petition known as a trust contest to try to have the amended version of the trust invalidated.
If it’s apparent a trust meets one or more of the grounds for contesting a trust, it may be the successor trustee’s responsibility to bring a trust contest to try to invalidate the problematic portions of the document. The successor trustee represents the interests of the beneficiaries, so if certain beneficiaries’ shares of a trust are reduced or eliminated due to the trust being invalid in some way, it may be the successor trustee’s fiduciary duty to bring the issue to the court’s attention.
Remember, there is a strict deadline for contesting a trust, so if you plan to bring a trust contest, you should not delay taking legal action.
Having said that, it’s important to clarify that a trust contest wouldn’t allow a trustee to change a trust, per se. A successful trust contest would simply mean that the affected trust assets would either be distributed to the decedent’s heirs according to intestate succession laws or that the trust would revert to its most recent valid version and be distributed according to its terms.
Power of Appointment
As previously mentioned, when settlors die or become incapacitated, their trusts generally will become irrevocable by default. Despite this fact, trusts sometimes provides trustees with what is known as power of appointment, which entitles them to exercise discretion in deciding which beneficiaries will inherit from the trust and how much each beneficiary’s inheritance will be.
Living trusts usually are revocable by the settlor, which means they can be changed or revoked by the settlor during their lifetime for any reason. Under some circumstances, however, a trust may be revocable even after the settlor has died.
For example, the settlor may provide for their surviving spouse to amend or revoke the trust after their death. They may grant the spouse general power of appointment, which would entitle them to exercise broad discretion in distributing trust funds, or they may grant them special or limited power of appointment, which would entitle them to make discretionary distributions to specified beneficiaries.
At the end of the day, whether or not the successor trustee has the power to revoke or amend a trust will depend entirely on the terms of the trust. If the terms of the trust are unclear, it is crucial for the successor trustee to consult with a qualified probate attorney before proceeding with making changes to the trust.
Keep in mind that if the settlor, trustee and beneficiary are all the same person, the trustee generally can make unlimited changes to their trust without having power of appointment, so long as they did not create their trust to be irrevocable.
Trust Protector Discretion
A common feature of contemporary estate plans is a provision calling for the appointment of a trust protector.
Trust protectors are independent third parties appointed by the settlor, trustee, trust beneficiaries or the court, and they generally are hired to evaluate the validity of a proposed change to a trust.
If the trust protector approves the proposed change to a trust, they will either sign the change into effect or seek approval from the court to execute the proposed change.
Judicial Modification
If the terms of an irrevocable trust do not provide for the successor trustee to amend or revoke the trust, but amending or revoking the trust is the most logical course of action (e.g., if the trust is no longer serving its purpose or the cost of administration is exorbitant), the successor trustee or beneficiaries of the trust can petition the court to have the trust modified or altogether terminated.
Disposing of All Trust Property
If all the property held by the trust is either sold or disposed of by the trustee, the trust may be effectively terminated on account of the trust no longer serving a purpose.
While this does not amount to the trustee changing or revoking a trust, it does point to the right of a trustee to terminate a trust that no longer holds assets.
Can a successor trustee change a trust? Keystone’s trust attorneys can help you find out.
Determining the specific powers a successor trustee has can be complicated. For example, under the trust provisions, can a successor trustee change a trust? Can a trustee change the terms of a revocable trust? Can a trustee change the terms of a trust that is discretionary?
Keystone’s team of skilled probate attorneys is standing by to help successor trustees navigate their role and protect beneficiaries against an improper change to the terms of a trust by a trustee. Call us today to request a free consultation.
