There are many reasons you may have set up an irrevocable trust.  But what if it no longer serves its purpose?  Can it be changed or “fixed?”

Now, why would a trust “break?”

Circumstances may have changed.  If your family circumstances have changed, for example, you divorce, or your children grow up to be financially very well off, or you change your mind about a beneficiary for any reason.

Perhaps your trust was created at a time when the estate and gift tax exemption amounts were very low and now the exemption has increased to over $5 million.  The trust may no longer be necessary to minimize those taxes.

Perhaps there were errors in the original trust – naming a wrong beneficiary or omitting a critically important clause in the trust.

If you have a trust in need of repair, you may have several remedies available to you.

Under the Ohio Trust Code, an irrevocable trust may be terminated or modified if the settlor (the one setting up the trust) and all the beneficiaries consent to the termination or modification.  Then they can petition the court to approve that termination or modification even if this will result in an inconsistency with the original purpose of the trust.

The Ohio Trust Code also allows a trust to be terminated or modified upon consent of just all of the beneficiaries if the court concludes that its continuance is not necessary to achieve any material purpose of the trust.  There are also provisions to modify or terminate a trust even if all of the beneficiaries do not agree.

Another method for fixing a broken trust is to change is situs – that is, by moving it to a jurisdiction whose laws are more favorable.  The trust itself must permit such a change of situs, which is a provision normally contained in irrevocable trusts.

Some states, including Ohio, have decanting laws, which allow a trustee to “pour” funds from one trust into another with different terms and even in a different location.  This may allow the correcting of errors, to take advantage of new tax laws or another state’s asset protection laws, to add or eliminate beneficiaries, or make other changes without court approval.

The rules relating to modification of irrevocable trusts are complex, and there are often risks of moving or revising a trust as there may be tax consequences.  Before you make any changes, it is advisable and in fact critical to consult your advisor/attorney to discuss the potential benefits and risks.

But don’t assume that the broken trust can never be fixed.