When a revocable living trust is established certain important powers – i.e., to amend or to revoke the trust — are usually reserved to the settlor (i.e., the person who established the trust). Unless the trust expressly allows someone other than the settlor to exercise these powers then only the settlor – while alive and competent — can exercise them.
The power to amend or to revoke a revocable trust are fundamental rights typically reserved to the settlor personally. Amending a trust, however, encompasses a wide variety of changes. It could mean changing who acts as a successor trustee or it could mean changing the distribution (gifting) of assets when the settlor dies.
Some powers to amend the trust, such as the power to amend who acts as successor trustee, may be granted to persons other than the settlor(s) in the event that the settlor is incapacitated or deceased. A power holder may be authorized to hire and replace successor trustees for trust administration. This is useful if the person named as successor trustee is not available or is not performing their duties properly.
In a joint trust between spouses, the settlors often allow each other to exercise their powers to amend and to revoke the trust if either spouse is incapacitated. This is typically so when the trust leaves all assets to the surviving spouse at the death of the first settlor. That way the well spouse can make necessary changes to the trust provisions due to changed circumstances. Sometimes, however, the well spouse may have to go to court to authorize changes.
In California, if the trust holds community property assets then the well spouse can petition the Superior Court to authorize a particular transaction. For example, if the well spouse is trying to qualify the incapacitated spouse for long term Medi-Cal, by transferring assets to the well spouse, the well spouse may ask the court to make all trust assets the well spouse’s own separate property.
Next, consider a trust with separate property assets belonging to an incapacitated settlor that allows the settlor’s conservator to exercise the settlor’s power to amend or to revoke the trust. In California, exercising such powers would then entail a conservatorship of the incapacitated settlor’s estate and a petition by a conservator for substituted judgment. If, however, the trust makes such powers personal to the settlor only then even that approach is not available.
Sometimes a trust allows other persons to exercise the settlor’s authority. That is, the trust may say that the settlor’s agent under a power of attorney, the settlor’s spouse, or the conservator of the settlor’s estate can amend or revoke the trust. For settlor’s agent to exercise the settlor’s powers to control the trust the power of attorney itself also needs to authorize the agent to exercise such powers.
For example, consider a trust that allows the settlor’s agent to direct the trustee to gift trust assets to certain family members (if the settlor is incompetent). The power of attorney itself must authorize the agent to instruct the trustee to make such gifts. If any gifting is to the agent then the power of attorney must waive the conflict of interest created by the agent authorizing a gift to himself.
What cannot be accomplished by a trust amendment once a trust becomes irrevocable, however, can sometimes be accomplished by a trust modification. In certain situations trust modifications may be accomplished by court petition. More recently, under California’s new so-called “Decanting” law, certain trust modifications of an irrevocable trust may be done without court petition through other procedures. The types of modifications that can be made by Decanting depend on the type of powers granted to the trustee and how the trust is drafted.
Anyone confronting any of these issues should consult with a qualified attorney for guidance.