There are many types of trusts, but the main categories are testamentary trusts, which go into effect upon the grantor's death, and living trusts, which go into effect while the grantor is still alive. Among living trusts, there are another two main subcategories: revocable trusts and irrevocable trusts. As its name implies, an irrevocable trust usually cannot be modified after it is executed. However, there are always exceptions to the rule, and irrevocable trusts are no different.
New Jersey residents may be surprised to hear that, in certain limited circumstances, it is possible to modify an irrevocable trust.
If a grantor wants to ensure beneficiaries to the trust have some discretion in the future to alter the trust if circumstances change, the trust can give "power of appointment" to beneficiaries. However, state laws determine how a beneficiary can change the terms of an existing trust.
In most states, a trust can be "decanted." This means that when decanting a trust the terms that you wish to keep are "poured" into a new trust, and the terms that are no longer wanted are left behind. In states that do not allow decanting, trustees can move the court for permission to change the terms of an irrevocable trust.
It is important to note that grantors cannot decant or change the terms of an irrevocable trust themselves. Only the trustees and the trust beneficiaries can decant an irrevocable trust or move the court for a modification of an irrevocable trust. For this reason, it is sometimes advisable to appoint an institution as a trustee, such as a bank, rather than a relative. It is also important to consider the tax consequences of decanting or altering the terms of a trust.