Should I Revoke My Trust?

Question: Several years ago, I went to a lawyer who convinced me to do a trust. Now, I am not so sure that it was the right thing for me. Am I able to revoke a trust? Should I revoke my trust?

Answer: The answer is…..it depends.

The first question is whether or not a trust can legally be revoked. If the trust is a revocable trust, then you as the grantor can revoke it at any time, without any other party’s consent. The revocation is usually done by a simple document stating your intent to revoke the trust, followed by the transfer of the assets from the trust to your name individually.

However, if the trust is an irrevocable trust, it may not be so easy. The New York Estates, Powers and Trusts Law provides that an irrevocable trust can be revoked provided all those with a beneficial interest agree. However, if you named a beneficiary who will not consent or if you have named a beneficiary that cannot consent, such as a minor or disabled person, you cannot revoke the trust. You may however be able to “decant” the trust. Decanting is a process whereby the Trustee of the old trust pours the assets into a new trust with more favorable terms. While you would still have a trust, the new trust may be able to give you more flexibility and achieve your new estate planning goals.

The second question is should you revoke your trust. If your lawyer suggested a trust as part of your estate plan, there may be a good reason for you to keep it. For instance, if you are disinheriting an heir, having a simple Will would be problematic because the Executor would need consent from that disinherited family member before he or she could distribute assets to the intended beneficiaries.  Therefore, having a trust, which avoids the probate process, is beneficial. Similarly, if you created a trust to protect assets in case you need Medicaid in the future, it may still be beneficial to keep your trust as Medicaid is still the primary payor of long term care in the state.

However, if you did a trust for tax planning, it may be time to review the trust. In 2021, the Federal Estate Tax exemption has increased to $11.7 million per person. With the exemption being so high, many people no longer have taxable estates. Some of the tax planning that would have saved your estate taxes in the past, could have adverse income tax consequences now that estate taxes are not an issue for most people. On the other hand, the exemption is set to sunset in 2026 or sooner, according to some proposals introduced in Congress. Whichever category you fall under, now is the time to review your estate plan.

In any event, you should review your trust and your concerns with your attorney to see what option best fits your situation.

Learn more about estate planning here.