Can you modify a trust?

Several years ago I witnessed elder law attorneys who work with special needs children and disabled adults become upset about a uniform law that most people thought was a good thing. I did not understand their concern at the time and do now but their worries were for nothing. As it turned out, the problem they expected did not come about and the law has been very helpful.

The law in question is the Uniform Trust Act which, in its Pennsylvania version, was adopted in 2006. It allows more flexibility when it comes to trusts than the laws it replaced. Trusts, even irrevocable trusts, might now, under some circumstances, be modified, reconfigured or even dissolved and some actions may be taken without going to court. It might be said that no trust is truly irrevocable and unable to be modified in all circumstances. This is a good thing because often conditions change over time. If the maker of the Trust could have known everything that would come later, he or she might not have included the offending provisions.

The reason the special needs lawyers were worried is that Special Needs Trusts (also known as Supplemental Needs Trusts), the trusts that preserve funds and still allow qualified beneficiaries to be approved for and continued on Medicaid, must be irrevocable. As matters stand now, the government still accepts Special Needs Trusts if they contain the proper irrevocable language and provisions even if the state in which the parties reside has adopted the Uniform Trust Act.

The question for most people is why might they care about the Uniform Trust Act? Here are some examples. You might be the beneficiary of a trust established long ago by a grandparent that has very restrictive provisions on distributions or the administrator of your trust could be a financial institution that has changed hands many times or is located in another state and is unresponsive or you disagree with investment decisions and you and other beneficiaries want to retain another trustee. There are now specific rules that provide a road map how to do this.

If the grantor, the person

who established the trust, is still living, many provisions of a trust may be changed by written agreement of the grantor and all the living beneficiaries without going to court. If minors or unborn children may be affected, a parent beneficiary may stand in for the child or children to agree on a concept known as virtual representation.

The trust might specify certain types of investments

and the instructions could be outdated. The trust might no longer be needed because of changing conditions or there might not be enough in the trust to make its administration worthwhile. Again there are provisions in the act to cover these possibilities.

The trust may have been drafted in such a way that, with changes in the law, it can no longer accomplish its goals. The law states that a court may modify the administrative or dispositive provisions of a noncharitable irrevocable

trust, make an allowance from trust principal or terminate the trust if because of circumstances that apparently were not anticipated , trust purposes would be furthered by making the change. Section 7740.2, UTC Section 412. In simpler words, the way the trust is handled and the provisions that concern distributions can be changed and the trust can be ended if later circumstances show that the trust purpose is not being accomplished by the original provisions.

One example, for instance

comes to mind. Irrevocable Life Insurance Trusts, ILIT’s, were drafted to deal with the problem of Federal Estate Taxes. Now that very few individuals are subject to the tax, the purpose of the trust might no longer exist.

Previously, some issues might have been handled by appointing an independent individual or entity known as a “Trust Protector” who could modify some provisions of the Trust. Before the Uniform Trust Act, you likely would need to go to court to request the court’s permission

to change and the standards might not have been clear. You might still need to go to court in some cases but there is more flexibility today.

Under the Uniform Trust Act, notices to beneficiaries and agreement among the parties may save time in court in some cases and provide more flexibility to beneficiaries and their families.

Janet Colliton is a West Chester attorney certified in elder law whose practice is limited to elder law, life care, special needs

and estate planning and administration, with offices at 790 E. Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, cofounder of Life Transition Services LLC, a service for families with long-term care needs. For more, listen on Wednesdays at 4 p.m. to WCHE 1520, 50+ Planning Ahead, with Janet Colliton, Colliton Law Associates, and Phil McFadden, Home Instead Senior Care.