Trust Beneficiary Modification

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vgc303
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Trust Beneficiary Modification

Post by vgc303 »

My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad. The way it was originally set up was such that if he passed away, it would be split equally between my sibling and I. My dad recently called asking if we could modify the trust so that in the instance that he passed before my mother, the assets in trust would transfer to her for her the benefit during her life, before passing to us (my sibling and I). The main point listed in the modification states that my dad, "is reasonably concerned that if the Trust is not modified, he will be unable to ensure appropriate care of his wife following his death".

I'm inclined just to sign the modification and get it notarized, but wanted to get others thoughts prior to following through. My guess is that their retirement accounts aren't as large as they'd like them to be and that they're both banking on the fact that they have this trust. I have no clue how much is in the trust, but I do know that I'm financially stable without it. My only concern would be if my dad passed away and then my mom started spending money irrationally (can't see it happening, but you never know). Do I sign this thing or get a lawyer to take a look at it?
fabdog
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Re: Trust Beneficiary Modification

Post by fabdog »

Who are the current trustees? Does the trust document give them the authority to change the beneficiary designation/structure?

Who prepared this modification? a good estate/trust lawyer?

You have other concerns... depending on how this is structured. If it passes to her, what binds her to passing it on to you and your sister? Does it stay in the same trust? Will your mother then be a trustee? Suppose she has changes in her life and amends the trust again for the benefit of someone else? Is that protected against with this update?

Lots of questions that should be answered.

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cheese_breath
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Re: Trust Beneficiary Modification

Post by cheese_breath »

Lawyer to review the language of the trust to see if what you want to do is possible.
The surest way to know the future is when it becomes the past.
NotWhoYouThink
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Re: Trust Beneficiary Modification

Post by NotWhoYouThink »

Your father almost certainly does not have the authority to modify the trust, but you/he/your sibling could pay an attorney to review it if you want. Do you have a copy of the trust?

Can your father withdraw money from the trust? It would remove the protections against creditors that a trust provides (and that in the vast majority of cases are unnecessary) but allow him to direct the money where he wants it to go.

Or he could ask you to make sure your mother is taken care of.
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Kenkat
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Re: Trust Beneficiary Modification

Post by Kenkat »

The trust reflects your grandmother’s wishes for where the money should go. It is a pretty common arrangement - I have heard it referred to as following the blood line - i.e., you have a blood relative relationship to your grandmother; your mother does not. This seems a little harsh but at the same time can protect against situations where your father passes away, your mother remarries, your mother passes away and grandma’s inheritance is suddenly out of the family.

I doubt you can modify it in the way you state unless you’ve already spoken to an attorney about it. As stated above, there may be other ways to accomplish the goal of seeing your mother cared for in the event of your father’s death.
muddgirl
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Re: Trust Beneficiary Modification

Post by muddgirl »

My husband's family made a similar change to a bloodline trust but they did it before the grandparent died. Basically one of the children was gravely ill and spouse was counting on part of the inheritance as their retirement plan :oops: The big risk as stated is that mom (in your case) remarries and intermingles the money with her new spouse. Our lawyer said there's no real way to prevent this - you have to trust that mom will protect the money with their own estate planning including a prenup.

In your case if the grandparent is already passed I don't see how a trust modification is possible. In our case the grantor (who in your case has passed away) and all beneficiaries had to agree.
Gill
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Re: Trust Beneficiary Modification

Post by Gill »

I don't believe the question can be answered without knowing the exact language of the trust. It is a bit unusual to "modify" an irrevocable trust although it appears there must be a lawyer who feels it can be accomplished. It does not appear your mother was an intended beneficiary of the trust and now your father is attempting to make her one. Does the modification keep it in trust for your mother? I really don't know how this can be accomplished and I would hesitate to sign any document attempting to achieve this result. How does your sibling feel about this?
Gill
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ivk5
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Re: Trust Beneficiary Modification

Post by ivk5 »

Dad could also use current trust income to buy life insurance to benefit mom. That would probably not be most cost effective solution but could be another (perhaps more direct way) to achieve what’s desired here without prejudice to OP and sibling...
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Re: Trust Beneficiary Modification

Post by bsteiner »

vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad. The way it was originally set up was such that if he passed away, it would be split equally between my sibling and I. My dad recently called asking if we could modify the trust so that in the instance that he passed before my mother, the assets in trust would transfer to her for her the benefit during her life, before passing to us (my sibling and I). The main point listed in the modification states that my dad, "is reasonably concerned that if the Trust is not modified, he will be unable to ensure appropriate care of his wife following his death".
...
More often than not, but not always, the current beneficiary (your dad) would have the power, by his Will, to appoint (leave) the balance of the trust to anyone other than himself or his estate or creditors. If he has this power, he could exercise it by saying in his Will that the balance of his trust will go in further trust for your mother, and then for you and your siblings. You would have to look at your grandmother's Will (or the trust agreement) to see if your father has this power over his trust.

If your father doesn't have this power, but the trustees have complete discretion to distribute the principal of the trust to him, then the trustees could decant the trust by distributing the trust assets to a new trust in which your father would have this power. Usually but not always trustees have complete discretion to distribute the principal to the current beneficiary.

If your father doesn't have a power of appointment, and the trustees don't have complete discretion to distribute the principal to him, it's more complicated, but it may still be possible to accomplish this. The trustees, or someone else, may have the power to grant your father a general power of appointment over the trust. Or the trustees could move the trust to one of about 8 states that allow trustees to decant a trust that doesn't give the trustees complete discretion to distribute principal into one that does, which should solve the problem.
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Re: Trust Beneficiary Modification

Post by Gill »

bsteiner wrote: Mon Sep 21, 2020 5:32 pm
vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad. The way it was originally set up was such that if he passed away, it would be split equally between my sibling and I. My dad recently called asking if we could modify the trust so that in the instance that he passed before my mother, the assets in trust would transfer to her for her the benefit during her life, before passing to us (my sibling and I). The main point listed in the modification states that my dad, "is reasonably concerned that if the Trust is not modified, he will be unable to ensure appropriate care of his wife following his death".
...
More often than not, but not always, the current beneficiary (your dad) would have the power, by his Will, to appoint (leave) the balance of the trust to anyone other than himself or his estate or creditors. If he has this power, he could exercise it by saying in his Will that the balance of his trust will go in further trust for your mother, and then for you and your siblings. You would have to look at your grandmother's Will (or the trust agreement) to see if your father has this power over his trust.

If your father doesn't have this power, but the trustees have complete discretion to distribute the principal of the trust to him, then the trustees could decant the trust by distributing the trust assets to a new trust in which your father would have this power. Usually but not always trustees have complete discretion to distribute the principal to the current beneficiary.

If your father doesn't have a power of appointment, and the trustees don't have complete discretion to distribute the principal to him, it's more complicated, but it may still be possible to accomplish this. The trustees, or someone else, may have the power to grant your father a general power of appointment over the trust. Or the trustees could move the trust to one of about 8 states that allow trustees to decant a trust that doesn't give the trustees complete discretion to distribute principal into one that does, which should solve the problem.
Bruce, yes, a power of appointment might suffice or decanting might be a possibility but we still don’t know what this “modification” says or by what authority it is being utilized.
Gill
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bsteiner
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Re: Trust Beneficiary Modification

Post by bsteiner »

Gill wrote: Mon Sep 21, 2020 5:44 pm ...
Bruce, yes, a power of appointment might suffice or decanting might be a possibility but we still don’t know what this “modification” says or by what authority it is being utilized.
Agreed. The second half of the original post didn't seem to follow from first half.

If the grandmother created the trust during her lifetime, she could amend it with the consent of all of the adversely affected beneficiaries, assuming they're all adults. However, she's no longer alive.

In most Uniform Trust Code state, one may ask a court to modify a trust based on changed circumstances, or to accomplish the settlor's tax objectives. However, it's not clear how either of these would apply, especially if the grandmother died recently. Also, it would make more sense to explore other ways to reach the desired result, such as by exercising a power of appointment (if there is one), or by decanting to give the original poster's dad a power of appointment if it's possible to do so.

Given the confusion (at least from the facts presented), the answer to the original poster's question in his/her last sentence would be that yes, he/she (or another interested party) should consult with competent trusts and estates counsel who can review the Will or trust agreement and advise as to how best to proceed.
Seasonal
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Re: Trust Beneficiary Modification

Post by Seasonal »

bsteiner wrote: Mon Sep 21, 2020 5:32 pm
vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad. The way it was originally set up was such that if he passed away, it would be split equally between my sibling and I. My dad recently called asking if we could modify the trust so that in the instance that he passed before my mother, the assets in trust would transfer to her for her the benefit during her life, before passing to us (my sibling and I). The main point listed in the modification states that my dad, "is reasonably concerned that if the Trust is not modified, he will be unable to ensure appropriate care of his wife following his death".
...
More often than not, but not always, the current beneficiary (your dad) would have the power, by his Will, to appoint (leave) the balance of the trust to anyone other than himself or his estate or creditors. If he has this power, he could exercise it by saying in his Will that the balance of his trust will go in further trust for your mother, and then for you and your siblings. You would have to look at your grandmother's Will (or the trust agreement) to see if your father has this power over his trust.

If your father doesn't have this power, but the trustees have complete discretion to distribute the principal of the trust to him, then the trustees could decant the trust by distributing the trust assets to a new trust in which your father would have this power. Usually but not always trustees have complete discretion to distribute the principal to the current beneficiary.

If your father doesn't have a power of appointment, and the trustees don't have complete discretion to distribute the principal to him, it's more complicated, but it may still be possible to accomplish this. The trustees, or someone else, may have the power to grant your father a general power of appointment over the trust. Or the trustees could move the trust to one of about 8 states that allow trustees to decant a trust that doesn't give the trustees complete discretion to distribute principal into one that does, which should solve the problem.
If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
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Re: Trust Beneficiary Modification

Post by Bobby206 »

Seasonal wrote: Mon Sep 21, 2020 5:59 pm
bsteiner wrote: Mon Sep 21, 2020 5:32 pm
vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad. The way it was originally set up was such that if he passed away, it would be split equally between my sibling and I. My dad recently called asking if we could modify the trust so that in the instance that he passed before my mother, the assets in trust would transfer to her for her the benefit during her life, before passing to us (my sibling and I). The main point listed in the modification states that my dad, "is reasonably concerned that if the Trust is not modified, he will be unable to ensure appropriate care of his wife following his death".
...
More often than not, but not always, the current beneficiary (your dad) would have the power, by his Will, to appoint (leave) the balance of the trust to anyone other than himself or his estate or creditors. If he has this power, he could exercise it by saying in his Will that the balance of his trust will go in further trust for your mother, and then for you and your siblings. You would have to look at your grandmother's Will (or the trust agreement) to see if your father has this power over his trust.

If your father doesn't have this power, but the trustees have complete discretion to distribute the principal of the trust to him, then the trustees could decant the trust by distributing the trust assets to a new trust in which your father would have this power. Usually but not always trustees have complete discretion to distribute the principal to the current beneficiary.

If your father doesn't have a power of appointment, and the trustees don't have complete discretion to distribute the principal to him, it's more complicated, but it may still be possible to accomplish this. The trustees, or someone else, may have the power to grant your father a general power of appointment over the trust. Or the trustees could move the trust to one of about 8 states that allow trustees to decant a trust that doesn't give the trustees complete discretion to distribute principal into one that does, which should solve the problem.
If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
A lot of times there are "unascertained beneficiaries" or minors who can't sign off. That is kids of kids or future born kids. That kind of thing.
Seasonal
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Re: Trust Beneficiary Modification

Post by Seasonal »

Bobby206 wrote: Mon Sep 21, 2020 6:03 pm
Seasonal wrote: Mon Sep 21, 2020 5:59 pm If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
A lot of times there are "unascertained beneficiaries" or minors who can't sign off. That is kids of kids or future born kids. That kind of thing.
Fair point and that must be checked. However, my question explicitly assumed there were no other beneficiaries. If there are, things become more complicated.
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Re: Trust Beneficiary Modification

Post by Gill »

Seasonal wrote: Mon Sep 21, 2020 6:07 pm
Bobby206 wrote: Mon Sep 21, 2020 6:03 pm
Seasonal wrote: Mon Sep 21, 2020 5:59 pm If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
A lot of times there are "unascertained beneficiaries" or minors who can't sign off. That is kids of kids or future born kids. That kind of thing.
Fair point and that must be checked. However, my question explicitly assumed there were no other beneficiaries. If there are, things become more complicated.
Contingent beneficiaries who would take if either remainderman predeceased the income beneficiary.
Gill
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celia
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Re: Trust Beneficiary Modification

Post by celia »

vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad.
I’m lost.

Since your grandmother died, her trust is now irrevocable and your father should have received his share. He can do anything he wants with it including putting it in his own trust.
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Re: Trust Beneficiary Modification

Post by Gill »

celia wrote: Mon Sep 21, 2020 6:14 pm
vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad.
I’m lost.

Since your grandmother died, her trust is now irrevocable and your father should have received his share. He can do anything he wants with it including putting it in his own trust.
It was left to him in trust! The trust is continuing, not distributed.
Gill
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Re: Trust Beneficiary Modification

Post by RyeBourbon »

Gill wrote: Mon Sep 21, 2020 6:16 pm
celia wrote: Mon Sep 21, 2020 6:14 pm
vgc303 wrote: Mon Sep 21, 2020 3:23 pm My grandma passed away a little over a year ago a left a trust to be split equally among her three kids, one of them being my dad.
I’m lost.

Since your grandmother died, her trust is now irrevocable and your father should have received his share. He can do anything he wants with it including putting it in his own trust.
It was left to him in trust! The trust is continuing, not distributed.
Gill
Presumably it went into three different trusts? One for each of her children?
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Re: Trust Beneficiary Modification

Post by Gill »

RyeBourbon wrote: Mon Sep 21, 2020 7:04 pm
Presumably it went into three different trusts? One for each of her children?
Yes
Gill
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vgc303
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Re: Trust Beneficiary Modification

Post by vgc303 »

fabdog wrote: Mon Sep 21, 2020 3:45 pm Who are the current trustees? Does the trust document give them the authority to change the beneficiary designation/structure?

Who prepared this modification? a good estate/trust lawyer?
Dad is now the trustee and primary beneficiary. Dad hired a trust lawyer to prepare the agreement of beneficiaries / petition for modification of irrevocable trust.
NotWhoYouThink wrote: Mon Sep 21, 2020 3:54 pm Your father almost certainly does not have the authority to modify the trust, but you/he/your sibling could pay an attorney to review it if you want. Do you have a copy of the trust?

Can your father withdraw money from the trust?
No I don't have a copy of the trust and yes he can withdraw money from it currently.

ivk5 wrote: Mon Sep 21, 2020 4:53 pm Dad could also use current trust income to buy life insurance to benefit mom. That would probably not be most cost effective solution but could be another (perhaps more direct way) to achieve what’s desired here without prejudice to OP and sibling...
This is actually exactly what they are currently doing. Apparently my Dad wants to move away from the monthly insurance payment though.


I appreciate the thoughtful questions brought up in this thread. I'm inclined to ask the same questions to the trust lawyer who prepared the documents. It's hard to know if its worth hiring my own separate lawyer and pay fees to review the documents because I'm not sure if the trust is holding $10k or $10M.
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Re: Trust Beneficiary Modification

Post by Luckywon »

vgc303 wrote: Mon Sep 21, 2020 3:23 pm My only concern would be if my dad passed away and then my mom started spending money irrationally (can't see it happening, but you never know).
Whom does the modification appoint as successor trustee in the event your father predeceases your mother? Is your father agreeable to appointing you and your sibling successor trustees in this event, or a corporate trustee? That may address all parties concerns adequately.
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Re: Trust Beneficiary Modification

Post by Gill »

I doubt if he has the unfettered right to withdraw from the trust. Otherwise there would be no need for this modification agreement. Are you sure it’s not the discretionary power of the trustees to invade for his benefit?
Gill
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Re: Trust Beneficiary Modification

Post by NotWhoYouThink »

If you don't have a copy of the trust, and don't know how much money you are potentially giving up, I think it is unfair of your father to ask you to sign off on the change. You deserve to know more.
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Re: Trust Beneficiary Modification

Post by Gill »

NotWhoYouThink wrote: Mon Sep 21, 2020 8:21 pm If you don't have a copy of the trust, and don't know how much money you are potentially giving up, I think it is unfair of your father to ask you to sign off on the change. You deserve to know more.
Good points. Absolutely. Is your sibling being asked to sign off also? A very awkward position for a child.
Gill
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Re: Trust Beneficiary Modification

Post by Bobby206 »

NotWhoYouThink wrote: Mon Sep 21, 2020 8:21 pm If you don't have a copy of the trust, and don't know how much money you are potentially giving up, I think it is unfair of your father to ask you to sign off on the change. You deserve to know more.
A copy of the trust will almost certainly not answer the question of how much money they are giving up either. Would need to ask for asset information to know that.
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Re: Trust Beneficiary Modification

Post by Luckywon »

I wonder whether the "modification" being presented is a document whereby on the death of OP's father, OP and his sibling disclaim their distribution from the trust in favor of a new trust benefiting the mother during her lifetime and designating OP and his sibling as remaindermen beneficiaries. That may explain why OP's signature is needed-if it was a matter of decanting or distributing the trust now, why would OP's signature be needed?
NotWhoYouThink
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Re: Trust Beneficiary Modification

Post by NotWhoYouThink »

Bobby206 wrote: Mon Sep 21, 2020 8:27 pm
NotWhoYouThink wrote: Mon Sep 21, 2020 8:21 pm If you don't have a copy of the trust, and don't know how much money you are potentially giving up, I think it is unfair of your father to ask you to sign off on the change. You deserve to know more.
A copy of the trust will almost certainly not answer the question of how much money they are giving up either. Would need to ask for asset information to know that.
Yes, a copy of the trust is one piece of the puzzle, the asset information (knowing how much money) is the other. Both are necessary for OP to make an informed decision.

The trust, for instance, might say "I, grandma, explicitly want to disinherit my DIL for xyz reason..." So you might want to know if you are explicitly going around grandma's final wishes.
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Re: Trust Beneficiary Modification

Post by muddgirl »

So just to be clear what you are signing is not the modification but a petition to the court to make the modification? In other words a judge would need to agree?

I certainly wouldn't sign anything without knowing what amount is under discussion and the original terms of the trust.
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Re: Trust Beneficiary Modification

Post by Lee_WSP »

Is it that much of a pain for you children to gift the distributions or part of the distributions to your mom? This is a much better solution than to give her irrevocable control over what is actually your finances.
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Re: Trust Beneficiary Modification

Post by celia »

OP, If you or your sibling have kids (or plan to), you might want to include writing to guarantee that the share you are expecting to get after both of your parents die, goes to your kids instead of someone else, in the case you die before both of your parents.

Since you are doing a favor for your dad, he should do one for you too.
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Re: Trust Beneficiary Modification

Post by celia »

vgc303 wrote: Mon Sep 21, 2020 3:23 pm ...My only concern would be if my dad passed away and then my mom started spending money irrationally (can't see it happening, but you never know).
If your mom’s spending could become ‘free-er’ if the financial resources were there, what’s to stop her from spending it all? Or she could be taken advantage of, especially if she had cognitive decline or caregivers had to come to her home.
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FIREchief
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Re: Trust Beneficiary Modification

Post by FIREchief »

Seasonal wrote: Mon Sep 21, 2020 5:59 pm If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
Grandma might care. She may have set up the trust the way it is for reasons known only to her.

(yes, I know, Grandma is no longer on this earth; I'm trying to make a point)
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Seasonal
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Re: Trust Beneficiary Modification

Post by Seasonal »

FIREchief wrote: Tue Sep 22, 2020 1:39 am
Seasonal wrote: Mon Sep 21, 2020 5:59 pm If the father and the two children, being all of the beneficiaries, and the trustees agree, who could object?

Of course, the trustees may not go along if they are independent and are being asked to do something that is not allowed by the terms of the trust. If, however, they are family or the like, would they be exposing themselves to liability for going along and if so, who could object?
Grandma might care. She may have set up the trust the way it is for reasons known only to her.

(yes, I know, Grandma is no longer on this earth; I'm trying to make a point)
The question is whether the beneficiaries and trustees would be incurring legal liability for the contemplated actions. Liability would seem to require someone with an enforceable right, such as a beneficiary or contingent beneficiary. Grandma can no longer sue. That the actions might go against Grandma's wishes was discussed earlier in the thread, for example, viewtopic.php?p=5507912#p5507912
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Re: Trust Beneficiary Modification

Post by Leesbro63 »

I'm changing the topic, somewhat here. But I'm wondering, in general, if all beneficiaries and all trustees agree to a change, after the trust grantor is dead, will that change be legal? Is this common practice. I can see lots of family situations where the grandparents died long ago and current circumstances are obvious that a change should happen, and everyone involved (beneficiaries and trustees) agree. I guess the issue of contingent beneficiaries, often too young to be involved, can be an issue.
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Re: Trust Beneficiary Modification

Post by afan »

If the trust is large enough to support the cost, this might call for an independent corporate trustee. That should eliminate the concern that the trustee might favor on beneficiary over the others.
Last edited by afan on Tue Sep 22, 2020 9:29 am, edited 1 time in total.
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Re: Trust Beneficiary Modification

Post by senex »

Leesbro63 wrote: Tue Sep 22, 2020 6:19 am I'm wondering, in general, if all beneficiaries and all trustees agree to a change, after the trust grantor is dead, will that change be legal? Is this common practice.
Good question, thanks for asking. I'm also curious. The ability to change the terms would be both reassuring (that flexibility is possible) and terrifying (that the grantor's wishes could be so easily disregarded).
afan
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Re: Trust Beneficiary Modification

Post by afan »

Depending on the cost, the current life insurance may be a good solution. This assures an asset for mom if dad predeceases her. An alternative might be to have the siblings own the life insurance, or the estate, so that other money in the trust goes to mom but the next generation gets the insurance.
This could be expensive if dad lives well into old age, but we don't have an idea of his life expectancy.
As long as the trustee could pay for the insurance, or distribute the money to dad, who could pay the insurance bill, it would not require changing the trust or the beneficiaries.
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Bobby206
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Re: Trust Beneficiary Modification

Post by Bobby206 »

senex wrote: Tue Sep 22, 2020 9:12 am
Leesbro63 wrote: Tue Sep 22, 2020 6:19 am I'm wondering, in general, if all beneficiaries and all trustees agree to a change, after the trust grantor is dead, will that change be legal? Is this common practice.
Good question, thanks for asking. I'm also curious. The ability to change the terms would be both reassuring (that flexibility is possible) and terrifying (that the grantor's wishes could be so easily disregarded).
Yes, if all beneficiaries agree an irrevocable trust may be changed in most jurisdictions but sometimes minors or unborn/unascertained are beneficiaries and they can't consent. Plus, at least in California (which is the state I am most familiar with) probate code 15403b doesn't allow the change "If the continuance of the trust is necessary to carry out a material purpose of the trust, the trust cannot be modified or terminated unless the court, in its discretion, determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust.”

Also, sometimes doing a consent modification can create a taxable event and thus a modification by "changed circumstances" is often the preferred route. In California that's PC 15409 if anybody is bored enough to go read up on it.
bsteiner
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Re: Trust Beneficiary Modification

Post by bsteiner »

Bobby206 wrote: Tue Sep 22, 2020 9:51 am
senex wrote: Tue Sep 22, 2020 9:12 am
Leesbro63 wrote: Tue Sep 22, 2020 6:19 am I'm wondering, in general, if all beneficiaries and all trustees agree to a change, after the trust grantor is dead, will that change be legal? Is this common practice.
Good question, thanks for asking. I'm also curious. The ability to change the terms would be both reassuring (that flexibility is possible) and terrifying (that the grantor's wishes could be so easily disregarded).
Yes, if all beneficiaries agree an irrevocable trust may be changed in most jurisdictions but sometimes minors or unborn/unascertained are beneficiaries and they can't consent. Plus, at least in California (which is the state I am most familiar with) probate code 15403b doesn't allow the change "If the continuance of the trust is necessary to carry out a material purpose of the trust, the trust cannot be modified or terminated unless the court, in its discretion, determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust.”

Also, sometimes doing a consent modification can create a taxable event and thus a modification by "changed circumstances" is often the preferred route. In California that's PC 15409 if anybody is bored enough to go read up on it.
The New York statute, and the common law, allows the grantor to amend or revoke a trust with the consent of the adversely affected beneficiaries.

If the original poster's dad doesn't have a power of appointment (presumably he doesn't, or he would revise his Will to exercise it), if the trustees have complete discretion to distribute principal to him, the trustees could decant the trust to give him a power of appointment, which he could then exercise in further trust for his wife.

Our clients usually though not always give their children broad powers of appointment, and almost always give the trustees complete discretion to distribute principal, though presumably the trustees don't have that discretion here or they would decant the trust to give him a power of appointment that he could exercise in further trust for his wife.

Most if not all Uniform Trust Code states allow a court to modify a trust based on changed circumstances or to accomplish the grantor's tax objectives. (New York hasn't enacted the UTC yet, and doesn't have those provisions.) While one could argue whether there are sufficient changed circumstances in this case, courts tend to be liberal in allowing modifications where none of the beneficiaries objects, so it's worth a try if the trust can't be decanted.
Gill
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Re: Trust Beneficiary Modification

Post by Gill »

bsteiner wrote: Tue Sep 22, 2020 10:26 am
Most if not all Uniform Trust Code states allow a court to modify a trust based on changed circumstances or to accomplish the grantor's tax objectives. (New York hasn't enacted the UTC yet, and doesn't have those provisions.) While one could argue whether there are sufficient changed circumstances in this case, courts tend to be liberal in allowing modifications where none of the beneficiaries objects, so it's worth a try if the trust can't be decanted.
Bruce, you speak of "where none of the beneficiaries objects" but how are minor, unborn and contingent beneficiaries treated? Can they be ignored or represented by a guardian ad litem?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Lee_WSP
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Re: Trust Beneficiary Modification

Post by Lee_WSP »

Gill wrote: Tue Sep 22, 2020 3:45 pm
bsteiner wrote: Tue Sep 22, 2020 10:26 am
Most if not all Uniform Trust Code states allow a court to modify a trust based on changed circumstances or to accomplish the grantor's tax objectives. (New York hasn't enacted the UTC yet, and doesn't have those provisions.) While one could argue whether there are sufficient changed circumstances in this case, courts tend to be liberal in allowing modifications where none of the beneficiaries objects, so it's worth a try if the trust can't be decanted.
Bruce, you speak of "where none of the beneficiaries objects" but how are minor, unborn and contingent beneficiaries treated? Can they be ignored or represented by a guardian ad litem?
Gill
You'd have to treat them as probably objecting since it's not clearly in their best interest.
bsteiner
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Re: Trust Beneficiary Modification

Post by bsteiner »

Gill wrote: Tue Sep 22, 2020 3:45 pm
bsteiner wrote: Tue Sep 22, 2020 10:26 am
Most if not all Uniform Trust Code states allow a court to modify a trust based on changed circumstances or to accomplish the grantor's tax objectives. (New York hasn't enacted the UTC yet, and doesn't have those provisions.) While one could argue whether there are sufficient changed circumstances in this case, courts tend to be liberal in allowing modifications where none of the beneficiaries objects, so it's worth a try if the trust can't be decanted.
Bruce, you speak of "where none of the beneficiaries objects" but how are minor, unborn and contingent beneficiaries treated? Can they be ignored or represented by a guardian ad litem?
If there are no adult great-grandchildren or more remote issue, the adult grandchildren should be able to represent the minor grandchildren (their siblings and cousins), and the minor and unborn great-grandchildren and more remote issue, since they have the identical or greater interest.
Bobby206
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Re: Trust Beneficiary Modification

Post by Bobby206 »

bsteiner wrote: Tue Sep 22, 2020 4:35 pm
Gill wrote: Tue Sep 22, 2020 3:45 pm
bsteiner wrote: Tue Sep 22, 2020 10:26 am
Most if not all Uniform Trust Code states allow a court to modify a trust based on changed circumstances or to accomplish the grantor's tax objectives. (New York hasn't enacted the UTC yet, and doesn't have those provisions.) While one could argue whether there are sufficient changed circumstances in this case, courts tend to be liberal in allowing modifications where none of the beneficiaries objects, so it's worth a try if the trust can't be decanted.
Bruce, you speak of "where none of the beneficiaries objects" but how are minor, unborn and contingent beneficiaries treated? Can they be ignored or represented by a guardian ad litem?
If there are no adult great-grandchildren or more remote issue, the adult grandchildren should be able to represent the minor grandchildren (their siblings and cousins), and the minor and unborn great-grandchildren and more remote issue, since they have the identical or greater interest.

That has not been my experience in California courts. In fact, I have had several cases where we had to get a guardian ad litem appointed to represent minors/unascertaineds. Of course each state is different and California is often the "craziest." :)
NotWhoYouThink
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Re: Trust Beneficiary Modification

Post by NotWhoYouThink »

OP said his dad was the trustee. Not a trustee. So who would prevent dad from decanting the trust?

On the other hand, if there is also a corporate trustee, that trustee might actually be motivated to follow the terms of the trust and carefully document any agreed changes, making sure a robust process was used to make the changes.

That's why OP needs a copy of the trust. And a hint about the assets involved, so the siblings can decide whether this is a battle for their children's future, or a tempest in a teapot.
Lee_WSP
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Re: Trust Beneficiary Modification

Post by Lee_WSP »

NotWhoYouThink wrote: Tue Sep 22, 2020 6:46 pm OP said his dad was the trustee. Not a trustee. So who would prevent dad from decanting the trust?
The trust document.
NotWhoYouThink
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Re: Trust Beneficiary Modification

Post by NotWhoYouThink »

Lee_WSP wrote: Tue Sep 22, 2020 7:19 pm
NotWhoYouThink wrote: Tue Sep 22, 2020 6:46 pm OP said his dad was the trustee. Not a trustee. So who would prevent dad from decanting the trust?
The trust document.
Legally and ethically correct, but my observation with family member trustees is that they do what they want unless someone catches them quickly and brings in lawyers.
Luckywon
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Re: Trust Beneficiary Modification

Post by Luckywon »

This seems to basically be a case of a successor trustee substituting his wishes for those of the grantor (grandma). There was another thread in the last week (entitled "ethics concern with trust") where the trustee ran roughshod over the interests of the remaindermen beneficiaries. One never knows for sure, but I think it's unlikely the interests of the remaindermen beneficiaries would have been trampled over in these cases if a corporate successor trustee was appointed, rather than an individual. I think one of the lessons here is that serious consideration should be given to a corporate trustee for any trust whose administration may be ongoing for a while after death of the grantor. Individual successor trustees seem to act in ways the grantor did not envision with some frequency.
Gill
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Re: Trust Beneficiary Modification

Post by Gill »

Luckywon wrote: Tue Sep 22, 2020 7:54 pm This seems to basically be a case of a successor trustee substituting his wishes for those of the grantor (grandma). There was another thread in the last week (entitled "ethics concern with trust") where the trustee ran roughshod over the interests of the remaindermen beneficiaries. One never knows for sure, but I think it's unlikely the interests of the remaindermen beneficiaries would have been trampled over in these cases if a corporate successor trustee was appointed, rather than an individual. I think one of the lessons here is that serious consideration should be given to a corporate trustee for any trust whose administration may be ongoing for a while after death of the grantor. Individual successor trustees seem to act in ways the grantor did not envision with some frequency.
I’ve been preaching this for quite some time. Just one of the many advantages of a corporate trustee including perpetual existence, experience, financially responsible if they mismanage the trust, always accessible and the benefit of group independent judgment.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Luckywon
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Re: Trust Beneficiary Modification

Post by Luckywon »

Gill wrote: Tue Sep 22, 2020 8:01 pm
Luckywon wrote: Tue Sep 22, 2020 7:54 pm This seems to basically be a case of a successor trustee substituting his wishes for those of the grantor (grandma). There was another thread in the last week (entitled "ethics concern with trust") where the trustee ran roughshod over the interests of the remaindermen beneficiaries. One never knows for sure, but I think it's unlikely the interests of the remaindermen beneficiaries would have been trampled over in these cases if a corporate successor trustee was appointed, rather than an individual. I think one of the lessons here is that serious consideration should be given to a corporate trustee for any trust whose administration may be ongoing for a while after death of the grantor. Individual successor trustees seem to act in ways the grantor did not envision with some frequency.
I’ve been preaching this for quite some time. Just one of the many advantages of a corporate trustee including perpetual existence, experience, financially responsible if they mismanage the trust, always accessible and the benefit of group independent judgment.
Gill
Yes, I've seen you make this point many times and I am more appreciative of its wisdom over time.

To OP: Much of the discussion in this thread has been along the lines of pointing out that it appears your father may be substituting his interests for grandma's, at your expense. But the elephant in the room is that the beneficiary of this modification is your mother. If I were in your shoes, I would not even hint at an objection. I would also not ask for information on the size the trust, even though I think your father should have been transparent about this at the time he asked you to sign the petitition. If your father wanted you to know, he would have told you, and unfortunately anything but unquestioning acquiescence from you may be taken the wrong way by either or both of your parents. The most I might do would be to ask your father that either you and your sibling, or a corporate trustee, be successor trustee if your father predeceases your mother, as this might protect both you and your mother. Of course every family is different and I'm not suggesting that's the right thing for you to do, it's just what I would do in your position.
Topic Author
vgc303
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Re: Trust Beneficiary Modification

Post by vgc303 »

Update: Since I started the thread I sent a list of questions over to my Dad regarding the trust including: Total assets? Who becomes trustee in event you die? What protections are there incase Mom marries after you pass? ETC.

I was met with an email response that essentially stated, "my lawyer has advised me not to provide any further information". :annoyed

We set up a phone call and after further discussion, me starting by saying that I don't care about the money and that I'm trying to gain a full understanding on how he came to this solution, they provided all the information I wanted to know. Total assets in the trust currently sit around $1.3M, the life insurance premium is starting to skyrocket not only because of my Dad's age, but due to the coverage amount. Theoretically my Dad could take the money out of the trust in full right now as he is the beneficiary and trustee, but there would be large tax implications. Keeping the money in the trust avoids inheritance taxes upon each transfer of the trust. If my Mom was to remarry after my Dad's passing, a similar signing and agreement of a trust modification would need to occur among all beneficiaries, in which case we would not sign.

At this point they've informed me enough to where I feel comfortable signing the petition for modification. I appreciate all the food for thought given in the thread. :happy
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