Altering an Irrevocable Trust

[twysmilng]

Arizona - My husband was presented a one-page document asking to alter the language in his 95-year-old mother's Irrevocable Trust (his sister is the Trustee). The sister has done some shady tax evasion & bankruptcy things in the last 20 years and is currently living with her boyfriend who has an expensive taste for building race cars (meanwhile she is still married to her husband). Mom recently sold her home for a $400K profit and now lives with them out of state. Mom seems to do whatever her her daughter tells her to do. There are a total of 4 adult children in the family.

The current Trust language says that "Mom may appoint as much of the principal of her trust to or among one or more of her descendants as she may from time to time direct in writing." The PROPOSED language is the same except for that sentence now reads "Mom may appoint as much of the principal of her trust as she may from time to time direct in writing." --- removing any mention of descendants.

When questioning this language, the sister said that it was so Mom could give the sister's share to the boyfriend, so sister would be able to remain on Medicaid. I feel like husband will be giving away any current & future share of the Trust by signing this, but he says "Sis wouldn't do that"... I smell a rat. Comments please!!

 

[FlyingRon]

You need an attorney. This is more than just "changing the terms of a trust." Changes to an irrevocable trust require the acquiescence of all the beneficiaries. The grantor isn't in control. Further, I have doubts about a whether a trust that allows unspecified beneficiaries at the whim of the grantor is really irrevocable under the terms of the various laws where irrevocable trusts have some benefit.

 

[TrustUser]

hi ron, can you really make changes to an irrevocable trust ?

 

[Taxing Matters]

You need an attorney.

I agree. There is a lot we don't know here. In particular it matters very much exactly what the trust says and which state's law governs the trust (which may or may not be the state that Mom lives in now).

Changes to an irrevocable trust require the acquiescence of all the beneficiaries.

Not always. Again, the terms of the trust and applicable state law matter greatly.

The grantor isn't in control.

The grantor cannot revoke an irrevocable trust. But the trust document might grant the grantor some powers in the trust, like the power to change who the beneficiaries are. Such powers don't make the trust revocable. But some powers reserved to the grantor may make the trust a grantor trust. It is sometimes desirable to make an irrevocable trust still a grantor trust. The grantor trust provides the same federal tax advantages that the revocable trust does, for example, but making the trust irrevocable may help shield the trust against the grantor's creditors. You don't see this done all that often, but there certainly is a place for these trusts.

can you really make changes to an irrevocable trust ?

In some instances, yes. Again, the terms of the trust and the applicable state law matter.

 

[zddoodah]

My husband has presented a one-page document asking to alter the language in his 95-year-old mother's Irrevocable Trust (his sister is the Trustee).

I think you meant to say that your husband was presented with this document (as written, it says that he presented it to someone). Correct?

Mom recently sold her home for a $400K profit and now lives with them out of state.

You tagged this post as relating to Arizona. Is that where you are? In what state are your mother and your sister-in-law? What state's laws govern the trust?

Comments please!

You didn't ask a question, but you seem to be more concerned about your sister-in-law's motivations, rather than about any legal issue. Needless to say, no one here can speak intelligently about your sister-in-law's motivations. If you have a question about a legal issue, please feel free to ask it. However, the bottom line is that, if your husband is not comfortable signing off on the modification, he is absolutely free to decline to do so.

 

[twysmilng]

Answering questions from above post (zddoodah):

Yes husband WAS presented with the document (apologies for typo).

The trust was written in Colorado; now Mom-in-law & sister have moved to Indiana.

Now sister threatened on the phone that if he didn't sign the document as it was written, she would "have Mom write (sister) a check today for $500K".

 

[quincy]

It sounds like it’s time for your husband to get an attorney involved.

 

[TrustUser]

It sounds like it’s time for your husband to get an attorney involved.

i agree. the trustee is not supposed to threaten beneficiaries. there is something way wrong !!

 

[TrustUser]

in re-reading your posts, i have a few questions

1) are you sure this is an IRREVOCABLE trust ? it is not common for a living person to have one.

2) are you sure your sister is the trustee ? if so, why would she need to have MOM write her a check ?

3) if MOM is the grantor of the trust, i would even question the legality of the grantor having decision making abilities in an IRREVOCABLE trust. if i recall, the grantor needs to give up control in order to make it irrevocable ? i am not an expert on irrevocable trusts, so i am interested in what TM has to say about it

4) can any of the other beneficiaries talk to MOM about it ? i find it highly unlikely that a mother would just sign a 500K check, without understanding what it is all about. unless she is no longer that coherent, etc. which could be thought of as elder fraud.

but all in all, this is a very fishy situation. the sister may just be attempting to intimidate the rest, without any real clout behind it. but as others have stated, you need to get some help ASAP.

 

[twysmilng]

Thank you for your comments TrustUser. In reply:

1) YES Irrevocable, we (finally) got a copy of the Trust this week. When the Trust was first put into place back in 2006 as being irrevocable, I had doubts about the wisdom of that

2) YES the sister is named as the trustee (first) and then each of the other siblings is named in turn to serve if the sister ceases to be a trustee.

3) This Trust was created when sister took Mom to the lawyer within 2 weeks after Dad passed (which I thought was a very hasty errand for a widow to have to go to

4) I don't think the other brothers will try to talk to Mom about it, although one brother insists that he will not sign the document in its current language. When Mom (with sister on speaker phone, as always) called my husband Thursday, it was to ask why he hadn't yet signed the document. Husband kept saying that he wanted to have the info reviewed by an attorney, that's when sister threatened to have Mom write the $500K check to her. And then sister kept saying "just hang up the phone, Mom!"

We have long ago surpassed anything Dr. Phil can help with, and are firmly in Jerry Springer territory....

 

[Just Blue]

Thank you for your comments TrustUser. In reply:

1) YES Irrevocable, we (finally) got a copy of the Trust this week. When the Trust was first put into place back in 2006 as being irrevocable, I had doubts about the wisdom of that

2) YES the sister is named as the trustee (first) and then each of the other siblings is named in turn to serve if the sister ceases to be a trustee.

3) This Trust was created when sister took Mom to the lawyer within 2 weeks after Dad passed (which I thought was a very hasty errand for a widow to have to go to

4) I don't think the other brothers will try to talk to Mom about it, although one brother insists that he will not sign the document in its current language. When Mom (with sister on speaker phone, as always) called my husband Thursday, it was to ask why he hadn't yet signed the document. Husband kept saying that he wanted to have the info reviewed by an attorney, that's when sister threatened to have Mom write the $500K check to her. And then sister kept saying "just hang up the phone, Mom!"

We have long ago surpassed anything Dr. Phil can help with, and are firmly in Jerry Springer territory....

Sorry...I'm not laughing at your situation but your last line was really funny. Life is easier if you can keep your humor.

 

[TrustUser]

then i suspect that your dad's half was placed into an irrevocable trust, which could have typically happened if they had had a joint trust between them

that would also explain the mom writing a check - doing so out of the half that she would own by herself

any thoughts i am presenting are based upon the assumption that the mom wants to treat her kids, fairly

that being so, the mom should be made aware of the threat, if she isnt already

and i think the brothers better talk to the mother. the mother should present her reason for the change to her sons, if she is requesting them to sign something. can the mother actually tell us why she is making this change ? that would go a long way towards knowing who is behind it

i obviously do not know anything about the actual relationships. but the sister may be taking control, cuz she does not think that her brothers will intervene. it just may be that she needs to feel some pushback !!

and when phone call did not go as plan, sister wanted mom to hang up. this give sister time to regroup, and come up with the next step that she wishes to do. it is not in your best interest to wait.

 

[twysmilng]

Dad did not have a trust before he suddenly passed; he only had his will, and everything smoothly passed to Mom as joint owner. This is their only marriage and only 4 adult children (all children are 50+ years old). Regarding the $500K threat, Mom was on the speaker phone with my husband when this happened, and sister was in the room with Mom.

There are no private conversations with Mom now that sister is around. Mom has been in "smile & nod" agreement with anything sister says for their whole lives, even more so since Dad died 10+ years ago. Last summer, sister suddenly showed up to whisk Mom out of her home and off to another state where neither had ever lived. They now live with sister's boyfriend. Mom pays sister $2,500 cash per month as her caregiver. Cash so sister can continue claiming that she's without income. Mom also spends a LOT of her money on living expenses for the 3 of them.

Sister has actually been separated from her husband for several years - separated so he can still pay her medical insurance. However, sister says that the reason for this document to change the trust is so that sister's share of the home proceeds can be paid out to her boyfriend, thereby avoiding the government knowing that she had a windfall and possibly affecting her current medicaid status. The trust lawyer even said this in email to us: pay out to the boyfriend so that sister doesn't lose her government benefits status. That sounds like he is agreeing to help sister commit fraud, and stealing any inheritance from the brothers (and their descendants). And I'm not sure why she would be on medicaid if her estranged husband is paying her medical insurance.... unless he is just giving her cash for medical insurance.

I think other motives are: sister & boyfriend recently moved into this 1880's house which needs a LOT of work; that's where the 3 of them live now. Only 1 tiny bathroom, leaking roof, non-existent insulation, etc. Also the boyfriend loves cars & going to all the races & has a nice barn full of cars with parts & accessories in hopes of building & driving his own race car soon. Maybe he'll name his car after the family

 

[TrustUser]

i am personally aware of many parents who are dumb about their kids !!

i do not have any more suggestions for ya - i hope things work out, but i cant say i have a positive outlook on the matter

 

[Just Blue]

I'll tag @Taxing Matters , he may be able to assist.