Can An Irrevocable Trust Still Be Revoked With Consent or Due to a Mistake?

When setting up an irrevocable trust, you’re locking assets away with the belief that the trust is unchangeable. However, you may be asking: can an irrevocable trust still be revoked with consent or due to a mistake? The straightforward answer is, in certain rare circumstances, yes, but the process is complex. This article will examine the legal ways in which an irrevocable trust might be altered or dissolved, including obtaining unanimous beneficiary consent and addressing document errors, with the aid of court approval.

A trust is both a document and a legal entity that can own property separate from its creator.  A trust is created by an individual or entity known as a “grantor” or “settlor” (for more, check out: What is the Definition of a Settlor of a Trust?).  Once the trust is drafted and executed by the grantor, the grantor or third parties can transfer ownership of property to the trust.  The trust is therefore a separate legal entity from the grantor that can own property, much like a corporation. (For more, check out: How Do Trusts Work?)

Key Takeaways:

• Irrevocable trusts, typically unchangeable and asset-protective, can be modified or revoked with beneficiary consensus, court approval, or due to document errors.
• Altering an irrevocable trust requires agreement from all beneficiaries and may involve intricate legal steps, like seeking court approval and navigating state laws.
• Dissolving an irrevocable trust could lead to considerable consequences like tax burdens, interrupted income, and compromised asset protection, requiring thoughtful deliberation and expert legal guidance.
  

Irrevocable Versus Revocable Trusts

Much like a will, revocable living trusts provide direction on how to distribute the grantor’s assets when he or she passes. But unlike a will, trusts come with the added benefit of your assets avoiding probate. Revocable living trusts can be modified—adding new beneficiaries, changing what a beneficiary receives, including new property, etc—by the grantor at any time as long as he or she is still alive. The trust becomes irrevocable upon the death of the grantor.

An irrevocable trust, on the other hand, cannot be modified or revoked by the grantor once it is executed. As such, adding an asset to an irrevocable trust will limit the grantor’s rights to that asset. Irrevocable trusts can be written in such a way to still allow the grantor to “own” a piece of property under the trust but be unable to dispose of the property. In exchange for the loss of rights over an asset, an irrevocable trust can help protect assets from creditors and help wealthy grantors minimize estate tax upon death. For more information check out Revocable Trusts Vs. Irrevocable Trusts.

Revocation of a Trust Based on Consent

As mentioned above, an irrevocable trust or a trust that does not contain the power to revoke in the trust instrument cannot be revoked by the settlor. But like most things in law, there are a couple of ways the courts can work around and revoke an otherwise irrevocable document.

The first option is revocation of the trust based on consent. It’s important to understand the distinction between revocation and termination of a trust. Revocation is a type of termination that results in the beneficiary no longer receiving proceeds or property under the original trust, whereas termination typically means dissolving the trust after the beneficiaries have received what is due to them in the original trust. These two terms could certainly be used interchangeably, but for the sake of this article, we are referring to a revocation that would lead to the beneficiaries not receiving what they would have under the original trust.

Revocation based on consent requires the settlor to consent to revocation and all beneficiaries to be accounted for, not incapacitated or underage, and consent to the revocation. If the settlor has already died the trust cannot be revoked. For more information on termination of a trust by consent check out How to Terminate a Trust in Illinois.

Revocation of a Trust Based On Mistake

If getting consent to revoke a trust is not possible the settlor still has the option of revoking a trust based on the grounds that the power to revoke or some other language was omitted from the trust. It must be clear that the settlor was unaware of the language omission and/or the omission was not due to any action or suggestion by the settlor. Only the settlor can petition to revoke a trust based on a mistake.

Evidence must be presented in order to make a case for revocation based on a mistake. There are no guidelines in Illinois for what type of evidence is required to revoke a trust based on a mistake, other than that the evidence must be clear and convincing to justify revocation. Evidence cannot be ambiguous or rest on the argument that the settler didn’t understand the trust document because it was written in legalese. 

Evidence suggesting that the settlor was told that he or she would have the power to revoke the trust, such as parol evidence, will usually be accepted by the court as a legitimate reason for revoking the trust based on a mistake. However, any parol evidence will typically need to be corroborated by more than one person. 

Any evidence that finds the settler created the trust to protect himself from creditors or estate taxes suggests the settlor had a strong understanding of the language and purpose of the trust and that the settlor did not intend to reserve the power of revocation. 

Termination, revocation, or modifying a trust is not something a person can do alone. It’s best to have a qualified trust attorney to help guide you through the process of creating, modifying, revoking, or terminating a trust. An error in the trust document or poor handling of any changes to a trust can lead to a slew of legal issues. For more information speak with one of our attorneys at 630-324-6666.