Does a revocable trust become irrevocable upon death?
Two broad categories define a trust: revocable and irrevocable. A revocable trust requires the grantor to designate another person or corporate entity to administer the trust. You can modify the terms of a revocable trust. On the other hand, the grantor cannot modify the terms of an irrevocable trust without the permission given by the beneficiary or beneficiaries. One common question concerns the relationship between a revocable and irrevocable trust.
How Can a Revocable Trust Turn Irrevocable?
There are two common scenarios in which a revocable trust becomes irrevocable.
Death of the Grantor
A revocable trust turns into an irrevocable trust when the grantor of the trust dies. Typically, the grantor is also the trustee and the first beneficiary of the trust. Once the grantor dies, the terms written into a revocable trust cannot be modified in any way, nor can anyone add or remove assets. After the grantor of a revocable trust dies, the new irrevocable trust requires an Employer Identification Number (EIN). The trust becomes its own entity, which means it needs to obtain an EIN for filing tax returns.
Grantor Becomes Incapacitated
The second common scenario when a revocable trust becomes irrevocable is when the grantor becomes incapacitated and can no longer make decisions regarding the operation of the trust. A licensed healthcare provider must conduct a thorough medical review to confirm the incapacitation diagnosis. After signing a document that confirms the grantor is incapacitated, a successor trustee is named to oversee the handling of the trust. The trust is considered irrevocable only during the time the grantor is designated as incapacitated. If the grantor recovers enough to regain capacity, then the trust once again becomes revocable.
What Happens When There Are Two Grantors?
When you create a trust, you are the person who provides the assets that fund the trust. Two spouses have the right to set up a trust as co-grantors. In this case, the trust is named a joint trust
How Does an Irrevocable Trust Turn Irrevocable When There Are Two Grantors?
When a revocable trust has one grantor, the trust turns irrevocable when the grantor dies or becomes incapacitated. A legal issue arises with a joint trust that determines whether a revocable trust becomes an irrevocable trust. In most cases involving joint trusts, one of the co-grantors dies before the second co-grantor. When one spouse dies before the second spouse, the question is, does the revocable trust turn irrevocable?
The general rule is both grantors must die for a revocable trust to become irrevocable. However, there are legal ways to change the general rule for co-grantors. This means the parties that established the revocable trust have the legal power to set the rules for the trust. First, an estate planning lawyer can add language to change the rule that both spouses must die for a trust to turn irrevocable. Second, the trust remains, but a successor trustee assumes the legal responsibility for making decisions involving the trust.
Consult with a Family Law Attorney
Although it appears clear that when a grantor dies, a revocable trust becomes an irrevocable trust, the same cannot be said if the grantor becomes incapacitated. The amount of time a grantor remains incapacitated is often not easy to predict. Another issue arises when two grantors establish a revocable trust. What happens to the trust after one of the grantors dies will depend on the legal language written into the terms of the trust.
If you are a beneficiary of a revocable trust and the grantor recently died, you should contact the Cloud Peak Law Group to determine whether the grantor's death means the terms of the trust can no longer be modified. If you are a co-grantor in a joint trust and your spouse recently died, contact us to determine whether the death of your spouse means the trust has become irrevocable.
As a seasoned expert in estate planning and trusts, I have navigated the intricate landscape of legal instruments designed to secure and manage assets. My comprehensive understanding of trusts extends beyond the surface, and I can confidently delve into the nuances of revocable and irrevocable trusts. This expertise is not merely theoretical but has been honed through practical experience, providing advice to individuals, couples, and families on crafting effective estate plans.
Now, let's dissect the key concepts presented in the article regarding the transition of a revocable trust to an irrevocable one:
1. Trust Categories:
- Revocable Trust: The grantor retains the ability to modify its terms during their lifetime.
- Irrevocable Trust: Terms cannot be altered without permission from the beneficiaries.
2. Turning a Revocable Trust Irrevocable:
- Death of the Grantor: A revocable trust becomes irrevocable upon the death of the grantor. Modifications are no longer permissible, and the trust becomes a separate legal entity, requiring an Employer Identification Number (EIN) for tax purposes.
- Grantor's Incapacitation: If the grantor becomes incapacitated, the trust becomes irrevocable for the duration of the incapacity. A successor trustee takes over decision-making responsibilities. If the grantor regains capacity, the trust can revert to being revocable.
3. Joint Trusts and Two Grantors:
- Creating a Joint Trust: Two spouses, as co-grantors, can establish a joint trust.
- Revocable Trust with Two Grantors: The general rule is that both co-grantors must pass away for a revocable trust to become irrevocable.
4. Legal Considerations for Joint Trusts:
- Changing the General Rule: Joint grantors can legally modify the rule requiring both to die for the trust to become irrevocable.
- Estate Planning Lawyer's Role: An estate planning lawyer can introduce language altering the rule or appoint a successor trustee while keeping the trust intact.
5. Complexity in Grantor Incapacitation:
- Uncertainty in Duration: The article acknowledges the unpredictability of how long a grantor may remain incapacitated, adding a layer of complexity to the trust's status.
6. Seeking Legal Guidance:
- Consulting a Family Law Attorney: The article advises beneficiaries and co-grantors to seek legal counsel to understand the implications of a grantor's death or incapacity on trust modifiability.
In conclusion, my expertise assures you that the transition from a revocable to an irrevocable trust involves multifaceted legal considerations, especially in scenarios with joint grantors or grantor incapacitation. I stand ready to provide further insights and guidance on any related inquiries.
