That word concerns many people, despite the effectiveness of irrevocable trusts in protecting assets and avoiding probate.

It’s true that, in general, an irrevocable trust cannot be entirely undone by the person who created it (called the “settlor”), acting alone. But under the laws of many states, even an irrevocable trust can be modified or terminated if the settlor has the consent of other interested parties. (Most states have adopted a version of the Uniform Trust Code (UTC), which has provisions for modification or termination.)

In Pennsylvania, where I practice, the rule is: “A noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries even if the modification or termination is inconsistent with a material purpose of the trust.”

Here’s an example. Bob creates an irrevocable trust naming his son and daughter as beneficiaries, and funds it with $300,000 for the purposes of protecting assets from scam artists, designing family members, possible future creditors, and long term care costs; having help managing the funds as he ages; and avoiding probate.

Bob cannot unilaterally change his mind and take all the money back. Without the consent of his children, he cannot stop the money from being distributed at the time of his death. But if Bob and his two children all agree, they could terminate the trust altogether.

Why might they terminate the trust? Circumstances may have changed drastically or unforeseen events may have arisen. Despite Bob’s best planning, things will not work out the way he originally intended and it now makes sense to switch to another plan. But it could be for any reason. According to the rule, as long as the settlor and beneficiaries agree, they can change or end the trust even if doing so is inconsistent with the purposes of the trust.

If the trust is terminated, what happens to the money? Under the UTC and Pennsylvania law, the beneficiaries determine where the money will go. It could go back to Bob if the beneficiaries agree, but the beneficiaries have the final say in a termination by consent.

What if Bob loses his capacity to make decisions? Can someone else consent for him? Often, the answer is yes, depending on state law and on the arrangements made for Bob. In Pennsylvania, consent can be exercised by a guardian, or by Bob’s agent under power of attorney if it is a general POA or if the POA specifically provides the power to consent.

Can Bob retain rights short of modification or termination? Settlors of irrevocable trusts often do retain certain rights, such as the ability to remove trustees, change distributions to beneficiaries, and so forth. Retaining such rights often affects taxation of the trust’s income, so you need to know what you’re doing or have the advice of competent legal counsel. Frequently, rights are retained for the precise purpose of affecting taxation in a favorable way.

IMPORTANT NOTES: Under the UTC, these rules apply only to a non-charitableirrevocable trust. Modifying or terminating an irrevocable trust with a charitable component may require court action. The rules discussed above may be different in your jurisdiction, so check with legal counsel.

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