Key Takeaways
- To revoke a trust in California, the trust must be revocable and formally revoked by a revocation document.
- In a revocable trust, a settlor has the ability to revoke a trust at any time, whereas an irrevocable trust can only be dissolved with the consent of all interested parties and by petitioning the court.
- To revoke a trust, the settlor must create a formal revocation document that is executed following the same procedures as the trust itself.
- It’s important to consult a skilled attorney to support you throughout the legal process of revoking or amending a trust.
Introduction
A trust is a valuable estate planning tool that can help you identify beneficiaries to receive assets after death. However, if a trust is no longer valid or no longer fits the wishes of the grantor, then interested parties have the option to amend the trust.
If the changes are significant or the trust is deemed to no longer fit its intended purpose it may be necessary to revoke the trust so that it no longer applies. That said, a trust can only be revoked under very specific circumstances depending on the type of trust. This guide covers how to revoke a trust in California, when you have the ability to do so, and what steps you should consider along the way.
Understanding Trust Types: Revocable vs. Irrevocable
Before determining how to revoke a trust, it’s crucial to understand whether it’s an option at all. Whether you can revoke a trust depends on the type of trust, of which the two most common are revocable and irrevocable.
A revocable trust is a trust that can be modified or revoked by the settlor, or trust’s creator, at any time after it has been signed and established, allowing the grantor to retain more control over the assets. While this type of trust grants the settlor significant flexibility to modify or terminate the trust during his or her lifetime, it does little to insulate the settlor from potential tax liabiliy, as the assets placed in a revocable trust are still considered as part of the settlor’s taxable estate.
On the contrary, an irrevocable trust can only be changed or revoked by court order or if all interested parties consent—this includes the trustee, trust beneficiaries, and legal heirs. Unlike a revocable trust, assets placed in an irrevocable trust are placed immediately under the control of a trustee and are not considered part of the settlor’s taxable estate.
While the trust creator is still alive, a revocable trust structure allows for greater flexibility. A revocable trust also becomes an irrevocable trust when the grantor dies or becomes incapacitated. When the trust becomes irrevocable, it prevents any changes to its terms and requires that the trust be administered as instructed in the trust instrument.
Steps to Revoke a Revocable Trust
Once determining whether a trust is revocable and must be revoked, you can begin the formal legal steps to revoke it. Below are the necessary steps to revoking a revocable living trust.
1. Review the Trust Document for Amendment or Revocation Clauses
The first step is to review the trust document for any specific provisions that clarify how the trust must be amended or revoked. If the trust clarifies these terms, then it’s crucial that these processes are followed closely in order to maintain the legal integrity of the trust changes.
If these terms are not written into the trust initially, section 15401 of the California Probate Code also allows for the creation of a separate document to describe how these processes should be handled. That said, this document must still follow the similar execution procedures as the trust document itself—it must be signed by the grantor who has clear testamentary capacity.
2. Drafting a Revocation Declaration
A trust revocation declaration is a legal document that formally declares the grantor’s intent to revoke the trust. This document is a necessary step toward having the trust formally revoked by the court and must be created by a grantor of sound mind.
The declaration document should include the following information:
- Date of the original trust agreement
- The grantor’s full name
- A clear statement of the grantor’s intent to revoke the trust
After creating this document, one should execute it and deliver it to the previously identified trustee in order for the trust to be considered officially revoked in California. It is advisable to consult a trust litigation attorney who can assist you with reviewing the revocation declaration to ensure it meets all legal requirements and that you follow the appropriate legal procedures to file it with the court.
3. Notarizing the Revocation Document
In California, after completing the revocation form, you must generally follow the same procedures as when executing a trust instrument. These procedures include having the document signed before two witnesses. California does not require that the document be notarized, but it is a helpful step for ensuring its validity and authenticity.
Having the trust revocation declaration document signed in front of a notary public is also beneficial for verifying that the grantor was of the proper state of mind and had testamentary capacity to make adjustments. Signing before a notary also proves that the grantor intended to dissolve the trust in line with their own free will.
4. Distributing Trust Assets
To effectively dissolve the trust, the titles of all property within it must be transferred to a new owner. After a trust is terminated, the assets within it must be distributed in accordance with the grantor’s wishes or while following state intestacy laws. In the case of a revocable trust, the settlor should provide direction for how to distribute any remaining assets—this may be done by executing a will or creating a new trust. The court is the only party with the authority to overrule the wishes of the grantor.
If a trust is irrevocable but terminated with the consent of the settlor and all beneficiaries, the assets will be distributed as agreed by all parties involved. The trustee is responsible for distributing assets in line with the wishes of the grantor or other parties. If the settlor does not specify an asset distribution method, then the distribution can be carried out at the trustee’s discretion in alignment with state inheritance laws guiding the line of succession.
Challenges of Revoking an Irrevocable Trust
Due to the structure of these trusts, irrevocable trusts are more complex and cannot be revoked as simply as a revocable trust, requiring consent from all interested parties and a petition to the court to do so. Below are the common challenges of revoking an irrevocable trust.
Legal Grounds for Dissolution
An irrevocable trust can be dissolved in some cases, but it can be a challenge to establish legal grounds to do so. If beneficiaries believe that the court should revoke the trust, they can file a petition to have this approved. However, it is not guaranteed that the court will approve these petitions if there are no legal grounds to do so.
Legal grounds for dissolving a trust under California Probate Codes exist in two circumstances:
- All interested parties, including the grantor, trustee, and beneficiaries, agree to dissolve the trust.
- The court finds that the trust is invalid and unforeseen circumstances compromise its initial purpose.
Specific instances that may allow you to dissolve the trust include if the costs of administering the trust are found to exceed the costs of the trust or if a trust was found to be improperly executed through a trust contest. For example, if the settlor was not of sound mind and did not have testamentary capacity to execute the trust under California law, the court may rule that the trust is invalid and should not be used to guide the administration process.
Consent from All Beneficiaries
Unanimous consent from all beneficiaries is necessary to file a petition with the court to modify or terminate an irrevocable trust in California. Beneficiaries may also provide unanimous consent for transferring certain assets out of the trust, which may help mitigate the need for revoking the trust completely or decanting assets of the trust into a new trust.
Common circumstances where beneficiaries may offer unanimous consent for revocation of a trust include:
- When doing so would offer tax benefits under new tax laws
- A change in circumstances, like marriage or childbirth, makes the original trust impractical
- The costs of administering the trust outweigh the value of the trust itself
- The trust is no longer serving its intended purpose for fulfilling the grantor’s wishes
Keep in mind that even if there is unanimous beneficiary consent, the court still has the authority to deny the petition. However, achieving unanimous consent is an important obstacle to consider and overcome on the path to revoking a trust.
Court Intervention and Approval
According to California law, judicial oversight is always a necessary step when modifying or revoking an irrevocable trust, even when the settlor is alive and agrees. Once all beneficiaries and interested parties agree to the revocation or modification of the trust, they can file a petition with the court if unforeseen circumstances would substantially impair the trust’s purposes.
California law permits changes to irrevocable trusts through court intervention if there are compelling reasons to do so, such as a lack of testamentary capacity, evidence of undue influence, or the trust ceases serving its intended purpose. It will be essential to have clear evidence to support these claims and to gather court approval.
On the other hand, the court may intervene to deny petitions and refuse changes. There are two common circumstances where a court may deny a petition pursuant to Probate Code §15403:
- If the continuation of the trust is required to carry out its material purpose.
- If the material purposes of the trust outweigh the reasons for the proposed changes.
Legal Considerations and Compliance
To revoke a trust, individuals must fully understand the legal considerations and compliance related to revoking a trust in California. Below are the most important.
Understanding California Trust Laws
California has clear laws that describe when a trust can be revoked or amended. Above all else, it’s important that the trust is revoked in accordance with explicit procedures outlined in the trust document by the grantor or by state statutes.
To revoke or amend a trust in California, you will need to keep in mind the following:
- To revoke a revocable trust, the settlor must be of sound mind and have testamentary capacity, meaning the ability to understand their responsibilities as well as the consequences of their actions and decisions.
- A revocable living trust may be revoked either according to the terms of the trust document itself or terms described in a separate document signed by the settlor and executed in accordance with California Probate Code §15401.
- An irrevocable trust in California can only be revoked or modified with court intervention or the consent of all the beneficiaries
It’s important to note that the revocation of a Revocable Trust in California can be contested by heirs or beneficiaries if the settlor was lacking mental capacity at the time of the revocation. California laws specify the importance of executing this document similarly to the original trust instrument for the purpose of ensuring that witnesses and a notary can verify the mental competence of the grantor upon execution.
Potential Tax Implications
Revoking a trust may result in changes to your tax liabilities, as these estate planning tools change the tax structure of your estate. Revocable trusts do not provide estate tax benefits as the assets within them are still considered part of the grantor’s taxable estate.
However, irrevocable trusts remove assets from an individual’s taxable estate, which reduces the size of the estate and may reduce estate tax liability. Upon revocation of an irrevocable trust, ownership of the assets will be transferred back to the grantor’s name, which may impact the tax liability of the estate. This may be especially consequential if assets within an irrevocable trust that have appreciated substantially are distributed back to the estate, which may be subject to these capital gains.
It’s crucial to discuss your plans with a tax professional and financial advisor so that you have a full understanding of the potential implications on your estate.
Importance of Legal Advice
As you weigh your options regarding revoking or amending a trust, it is recommended that you seek legal guidance to understand the complexities. An attorney can explain the trust revocation process, whether you have grounds to do so, and what legal procedures to expect. Their insight will help you navigate the necessary legal steps, effectively drafting the proper documents, and ensuring that you meet all requirements for a clear revocation.
A skilled attorney will also help you understand the potential implications of revoking a trust so that you know what next steps may be necessary for preserving an individual’s wishes and the overall estate plan. All together, experienced legal guidance will ensure you are making an informed decision related to trust revocation and what to consider after the trust is officially dissolved.
Exploring Alternative Options
Formal revocation of a trust does not have to be the first option for addressing concerns within a trust arrangement—consider the following alternatives.
Amending the Trust Agreement
A trust amendment is used to add, modify, or remove clauses from an existing trust without needing a complete revocation. Amending the trust agreement is often suitable for simple changes, like adding a beneficiary, changing a beneficiary, or renaming or removing a trustee.
A trust amendment is considered a more feasible alternative to revocation, only making specific changes to the original trust agreement rather than the whole document. The trust instrument should outline a process for making amendments, just as it should provide instructions for revocation.
If the trust does not specify instructions for amendments, according to California Probate Code §15402, a trust can be amended in the same manner it can be revoked. If the trust is irrevocable, which includes creating a written document and receiving approval from all beneficiaries and the court.
Creating a New Trust
In cases where an individual seeks to modify their original estate plan to account for changing life circumstances, such as a shift in family dynamics or a sudden increase in wealth, they may decide to create a new trust for a fresh start in their estate planning.
Creating a new trust will require drafting a new trust agreement and transferring titles of assets into the trust. You may decide to create a new trust and revoke the original trust, or you may consider creating a trust in addition to the current trust. If you have a complex asset portfolio, a new trust may be helpful for allowing you to maximize asset protection.
If you choose to revoke the trust, it will be necessary to transfer the titles of all assets from the original trust into the new trust. As you navigate this process, be sure to consult an estate planning attorney and financial advisor so you are taking the best possible route for protecting your interests and ensuring clarity regarding your estate plan, including, specifically, which estate planning document is the operative one.
Asset Transferral Options
Rather than fully revoking a trust, it may be more fitting to transfer specific assets out of the trust if the grantor’s estate plan has changed. This process may allow for more flexibility when managing the trust, allowing the grantor to maintain the overall structure of the trust while creating a more favorable distribution of assets.
Transferring assets out of the trust will require changing titles, deeds, or legal documents to remove trust ownership. A grantor may decide to transfer ownership back to themselves within their taxable estate or into a new trust.
Revocable trusts allow the grantor to maintain control over assets during their lifetime, granting them the ability to transfer assets at their discretion. For an irrevocable trust, beneficiaries may also unanimously consent to transfer assets out of the trust. Once again, the trust instrument should outline any criteria or instructions for transferring assets or making changes.
Implications of Trust Revocation
Revoking a trust means that a trust is fully terminated, canceling its provisions and control over designated assets. Before revoking a trust, it’s important to understand all the consequences of doing so, as it can significantly restructure an individual’s estate plan and change how assets are distributed, particularly if you had intended to leave your estate to individuals who would not be heirs-at-law.
Estate Planning Adjustments
After revoking an irrevocable trust, you will need to consider the effects on your estate plan. Often, a grantor revokes a trust due to changing life circumstances, such as marriage, divorce, or the birth of a child, so that they can create a new trust instrument that better aligns with their current life situation.
However, once the grantor revokes a trust, it is crucial that they also develop a new estate plan with clear estate planning documents so that their wishes are well-documented for guiding the trust administration process. This may include creating a new trust or writing a last will and testament to outline their wishes so the estate administration process can continue in alignment with their wishes.
If there are multiple people with a stake in the trust, such as a community property trust, it’s crucial that all settlors agree with the trust provisions. Clear communication between the settlor and beneficiaries about their future plans can also help avoid trust contests or disputes in the future.
Impact on Asset Protection
Once a trust is revoked, the assets that were included in the trust are removed from it and no longer have the same level of protection. This means that assets in an irrevocable trust are transferred back under the ownership of the grantor and part of the taxable estate, making them subject to estate taxes and removing the benefit of creditor protection. This consideration is less relevant for a revocable trust, as the trust assets are still considered part of the taxable estate regardless.
However, for either type of trust, if the trust is revoked and the assets are returned to the estate, it could leave the assets subject to the probate process. Without including these assets in a trust or including them in a will, these assets may be subject to being distributed according to state intestacy laws rather than the wishes of the grantor.
Ensuring Execution of Personal Preferences
It’s crucial that interested parties center the preferences of the grantor of the original trust throughout the administration of the trust and the distribution of trust assets. If a trust is revoked, then it’s important that the trustee does their due diligence to ensure the wishes of the grantor are still carried out when distributing trust assets to beneficiaries.
It’s advisable to engage an estate planning attorney early on in the process so that you can ensure your estate plan aligns closely with the wishes of the grantor to either minimize the need for revoking a trust in the first place or ensure there is clear guidance for the distribution of assets if a trust is revoked.
Get Help Revoking a Trust in California with RMO Lawyers
If a trust is revocable, then revoking a trust in California involves completing a declaration of revocation document. If a trust is irrevocable, you will need unanimous consent from all beneficiaries and a successful court petition to change it. In any case, it’s important to consult an experienced attorney about your legal options and how to move forward in the best possible manner.
In the event that you experience any disputes that complicate the process, the trust litigation attorneys at RMO may be able to help. With our decades of experience in navigating the intricacies of trusts, amendments, and revocation, we’ll help you build a winning strategy to navigate your dispute and protect the legacy of the trust creator.
Schedule a consultation with our attorneys at RMO LLP to start discussing your trust administration case.
Glossary
Grantor – A person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.
Irrevocable trust – A type of trust that cannot be modified or revoked by the grantor after it has been established, providing benefits such as asset protection and tax advantages.
Probate – The court process in which the assets of an estate are gathered, accounted for, and distributed to the heirs or beneficiaries after an individual passes away, either in accordance with the deceased’s wishes if they had a will or following local intestacy laws if there was no will.
Revocable trust – A trust that can be modified, amended, or revoked by the grantor at any time during their lifetime. It typically becomes irrevocable upon the grantor’s death.
Settlor – Another term for a person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.