Q&A On Trust Modifications 7/15/15

INTRO- If you take the time to have a trust drafted to handle your wishes upon your demise you would assume that no one can change it. However, Ohio law does allow your trust to be changed possibly in ways you did not anticipate.

Q- If you set up a trust that provides how you want your estate to be handled when you pass away, how can anyone change that?

A- Most trusts become irrevocable upon the death of the person setting up the trust. At that point the trustee has a fiduciary duty to administer the trust under the specific terms of the trust. You would think that would be enough to solve the problem. However, an irrevocable trust can be terminated or changed if all of the beneficiaries agree and the court approves.

Q- How does the court decide whether to change or terminate your trust?

A- The court can terminate the trust if it feels that continuing the trust is not necessary to achieve any material purpose of the trust. The court can also modify the trust if the modification is not inconsistent with the material purpose of the trust. The court can also make these changes or terminate the trust even if all the beneficiaries don't agree.

Q- How can you make sure that a court won't modify the trust?

A-. Some people suggest that you put in the trust some of the underlying reasons for what you are doing in the trust so the court can understand the rationale for the trust provision. However, there are also several provisions in Ohio law that allow changes to be made in the trust without the court's involvement.

Q - Can you give me an example of that?

A. If a trust has less than $100,000 the trustee of the trust can terminate the trust if they feel the value of the trust property is too small to justify the costs of administering the trust. There is nothing you can do to eliminate this right. Let me give an example. Let's say the husband dies and his trust provides income to his wife and on her death the assets pay out to children. If the assets drop below $100,000, the trustee can liquidate the trust and distribute the assets to the surviving spouse and children as he deems appropriate based upon the purpose of the trust certain other factors.

Q- That doesn't seem right. Why does the law allow trusts to be modified like this?

A- In 2007 Ohio adopted what is called the Ohio Trust Code which is modeled after the uniform trust code. The idea is to provide flexibility in administering trusts that could last for decades so the trust can address unanticipated changes in the future. However, this added flexibility means that your wishes may be ignored.

CLOSE- You may think that your estate plan will be followed by your heirs, but as you can see it is harder to do this then you thought.