Guide to Revoking a Trust
In this article, we discuss who has the authority to revoke a trust, the process for how to revoke a trust, and the rules surrounding irrevocable trusts.
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A trust is a legal instrument that enables a third party — called the trustee — to hold and direct assets placed in that trust (such as money, investments, or property) on behalf of beneficiaries.
Unlike wills, trusts are not generally required to pass through probate, which enables them to offer more privacy to the parties involved. People often select a trust to serve as their primary estate planning document for this reason. A trust may also make it possible for beneficiaries to receive their inheritances faster.
But what if your plans have changed and you need to revoke your trust? How do you revoke a living trust? Can you revoke an irrevocable trust? If the trust is not yours but that of a decedent, can it be revoked? Can a trustee revoke a revocable trust? Can a trust fund be revoked?
Whether you are the creator of a trust (the settlor) seeking information on how to revoke a revocable living trust, or you are a trustee or trust beneficiary seeking to modify or terminate the trust of a deceased settlor, a trust attorney can help you navigate the process. If you are a settlor, it is essential you use the correct methods to revoke a trust, or multiple trust instruments could surface following your death, increasing the likelihood of your final wishes not being fulfilled.
A first step toward revoking a trust is understanding the type of trust you are dealing with. In the following section, we explain the types of trusts that arise in the context of estate planning.
Revocable Trusts vs. Irrevocable Trusts
Trusts are either revocable or irrevocable. As suggested by its name, a revocable trust is a trust that can be modified or revoked by the settlor after it has been signed. An irrevocable trust, on the other hand, cannot be modified or revoked by the settlor once it has been signed. The benefits of irrevocable trusts are that they are usually protected from the reach of creditors and can offer significant tax savings.
When the settlor of a revocable living trust dies or becomes mentally incapacitated, their trust becomes irrevocable, meaning that neither the trustee nor the trust beneficiaries can revoke it. An exception to this rule is if the trust in question was a joint revocable trust (such as one created by husband-and-wife settlors). With this type of trust, the provisions disposing of the assets of the deceased settlor may become irrevocable upon that settlor’s death, but the surviving spouse would generally still be able to revoke or modify the provisions of the trust disposing of their own share of the assets.
Living Trusts vs. Testamentary Trusts
Under the umbrella of revocable trusts and irrevocable trusts are living trusts and testamentary trusts.
A living trust takes effect as soon as it has been signed by the settlor. To fund it, the settlor must transfer ownership of the assets named in the trust document into the name of the trust (i.e., the titles on those assets must be formally changed). A living trust can be revocable or irrevocable.
A testamentary trust is created by a decedent’s last will and testament and does not go into effect until after the creator of the will (the testator) has died. For example, a will may provide instructions for a testamentary trust to be created to allow for the trustee to distribute trust assets to the beneficiaries of the estate. This type of trust is irrevocable since the settlor is not alive to revoke the trust, and only they have the authority to take such an action. Unlike other types of trusts, testamentary trusts usually do have to pass through probate.
The most common reasons for revoking a trust include:
- The birth or death of a relative
- The acquisition of new property or assets
- The acquisition of a large amount of money
- The acquisition of a large amount of debt
- A marriage
- A divorce
- Moving to another state
- There are extensive amendments to an existing trust
If you have questions about whether your situation calls for revoking a trust or merely amending it, an estate planning attorney will be able to provide some guidance.
Who Can Revoke a Trust?
Who has the authority to revoke a revocable trust? Who has the authority to revoke an irrevocable trust? Can a trustee revoke a revocable trust? Can a settlor revoke an irrevocable trust? The answers to these questions are surprisingly less complex than they seem.
As a general rule, a trust can only be revoked by its settlor or anyone else the settlor has granted the power to revoke. If there are multiple settlors, all the settlors must agree to the revocation (unless the provisions of the trust establish different rules). So, in regard to the question of whether a trustee can revoke a revocable trust, the answer is no.
As far as irrevocable trusts go, even settlors are not authorized to modify or revoke them once they have been signed.
What Capacity Is Required to Revoke a Trust?
Trusts are complex documents, and thus, require a greater level of capacity to execute and revoke than wills. To revoke a trust in California, the settlor must have the capacity to contract. In other words, settlors must have more or less the same level of mental competence when revoking a trust as they had when executing the trust. This means that the settlor should be alert, have the ability to process information and thoughts, and be able to modulate their moods.
In California, to execute or revoke a trust, the settlor should understand:
- The responsibilities, duties and rights affected or created by their trust
- The likely consequences of their decisions on interested parties
- The reasonable alternatives to their decision, along with any significant risks or benefits
If a settlor lacks any of the requirements for executing contracts, they are not of sound enough mind to revoke their trust, since they may be vulnerable to undue influence and/or other forms of elder financial abuse that could lead to them to revoke their trust against their own free will. Furthermore, if a trust is revoked by a settlor who lacks mental competence, their heirs or trust beneficiaries would have grounds for contesting the trust the document after they die.
Steps for How to Revoke a Revocable Living Trust
How do you revoke a living trust? Can a trust fund be revoked? If you are seeking information on the process for how to revoke a living trust in California, you are on the right path: Properly revoking a trust is the only way to ensure your defunct trust won’t be mistaken for your most recent trust after you die.
When revoking a trust, it is important to make your intentions very clear in writing. Below are the steps for how to revoke a trust.
- Find out whether the trust instrument provides a method of revocation.
When creating a trust, a settlor will often include instructions for revocation in the provisions of the document. If such instructions are provided, it is important you follow those instructions to revoke the trust. If you are unsure whether a trust provides a method of revocation, it is best to err on the side of caution and have a trust attorney inspect the document.
- Sign a trust revocation declaration and deliver it to the trustee.
Most states require trust instruments to provide a method of revocation. For example, the trust may include a simple statement such as: “I reserve the right to amend this trust by a signed document delivered to the trustee.”
The most common document settlors use to revoke their trust is a trust revocation declaration, which can be downloaded off the internet, or, even better, be drawn up by a trust and estate attorney. With an attorney’s help, you can ensure revocation procedures will be carried out properly. While California does not require notaries or witnesses to oversee the signing of the revocation declaration, it could be a good idea to get a notary involved anyway.
If you specifically are seeking information on how to revoke a living trust in California, it is important to keep in mind that your signed revocation declaration will have to be delivered to the trustee of your trust in order for your trust to be properly revoked.
Here is an example of a trust revocation declaration:
“I, John Doe, hereby revoke the John Doe Revocable Living Trust, created by the Declaration of Trust signed MONTH, DAY, YEAR, according to the power reserved to me. All property held in the trust shall be returned to the settlor. ”
- Defund the trust and transfer titles.
The final step in revoking a revocable trust is to transfer the titles of all the assets heldby the trust into the names of other persons or entities. If your trust holds no assets, there is very little risk of your old trust being mistaken for your new one after you die, since your old trust will have no assets to distribute to beneficiaries.
Instead of revoking their entire trust, many settlors go the route of removing certain assets from their trust by changing the titles on them, since this would have the same effect as revoking the provisions of the document dealing with those assets. Once assets are no longer in the name of the trust, the trust has no control over them.
Keystone’s probate attorneys have litigated several cases in which multiple estate planning documents have surfaced following a decedent’s death, and a dispute arises over which of the trusts, if any, are operative, and which were revoked. This type of situation is no walk in the park for the decedent’s heirs and beneficiaries, whose inheritances are left in limbo until the disputes over the documents are resolved. What’s worse, their inheritances could be depleted in the process of litigating the dispute.
If you are a beneficiary or heir dealing with a situation in which multiple estate planning documents have surfaced following a loved one’s death, our will and trust contest attorneys can help.
Can a Trust Fund Be Revoked?
Before delving into the question of whether a trust fund can be revoked, it is important to understand what a trust fund is. Trust funds are created by a trust instrument and by assets being transferred into the trust’s name. For example, if a settlor transferred the title of all their bank accounts and retirement accounts into the name of their trust, those assets would become a part of the trust fund, which will be what is ultimately distributed to beneficiaries after the settlor dies.
By extension, if a trust instrument is revoked, the trust fund would be automatically revoked as an asset of the trust. In fact, if the proper procedures are followed, the trust fund would be dissolved as soon as the final step in revoking a revocable trust, which entails defunding the trust, is carried out. On the other hand, if a trust is irrevocable, the trust fund cannot be revoked.
Can You Revoke an Irrevocable Trust?
Can a settlor revoke an irrevocable trust? If you are seeking information on how to revoke an irrevocable trust in California, you are likely to be disappointed by the answer because it is generally not possible to revoke an irrevocable trust. As previously mentioned, once an irrevocable trust has been executed, it cannot be modified or revoked by the settlor.
There are workarounds, however. If there is unanimous consent among beneficiaries, a petition can be filed with the court to try to have modifications to the trust approved or to try to have the trust altogether terminated, although the court does not always approve such petitions.
Pursuant to Probate Code section 15403, two reasons why the court may deny such petitions is 1) if continuation of the trust is required to carry out its material purpose, or 2) if the material purposes of the trust outweigh the reasons for the proposed changes.
Another workaround is for the settlor to seek unanimous consent from the beneficiaries and later the court to transfer certain assets out of the trust.
Why might beneficiaries agree to modify or terminate an irrevocable trust? A common reason why beneficiaries consent to revoking an irrevocable trust is if the trust’s assets are adversely impacted by new tax laws, if maintaining the trust has become too expensive, or if the trust is no longer serving its intended purpose.
Finally, while the settlor may not have the power to revoke the trust, there may be other powers granted to the settlor (e.g., the power to substitute assets or the power to change the beneficiaries of the trust through a power of appointment) that, if exercised, would still accomplish the goals of the settlor.
Can you Revoke the Trust of a Decedent?
Once a settlor dies, their trust generally becomes irrevocable; however, if the deceased settlor’s heirs or trust beneficiaries believe the trust document to be invalid in some way, they may be able to bring what is known as a trust contest to try to have the document voided.
Trust contests cannot be brought because beneficiaries are disappointed by the size of their inheritance; valid grounds, such as undue influence or suspicion of a forgery, must exist in order to bring a contest. Also, the petitioner must have standing, which means that they should stand to inherit more than they are already inheriting if they were to win their contest. If a beneficiary’s inheritance would reduce or remain the same with a successful contest, they do not have standing. The only parties who can have standing in trust contests are trust beneficiaries under the current trust, trust beneficiaries under a prior version of the trust, and a decedent’s heirs.
Valid grounds for contesting a trust include:
- Undue influence – Excessive persuasion was used to convince the decedent to create, amend or revoke their trust.
- Lack of capacity – The decedent lacked the mental capacity to create, amend or revoke their trust.
- Elder Abuse – Financial, physical, or emotional abuse was perpetrated against the decedent, and it played a role in their creating, amending or revoking their trust.
- Fraud – The decedent was deceived into creating, amending or revoking a trust.
- Forgery – A trust was fraudulently signed by someone other than the decedent.
- Lack of Due Execution – The proper legal protocols were not followed when creating, amending or revoking a trust.
- Mistake – An error was made, such as the decedent signing a trust thinking it was another type of document, e.g., a power of attorney.
- Revocation – The document was previously revoked by the settlor.
If you are a trust beneficiary or heir and believe you have valid grounds for bringing a trust contest, you should not wait to get in touch with a trust contest attorney, since trust contest petitions must be brought within a specified time period after the death of the settlor.