Trusts and Wills: What if the document no longer fits the family situation?

By: Elizabeth A. Hartnett

A common complaint about the trust or will of a deceased ancestor is that the terms of the trust or will are not responsive to changed circumstances and events not contemplated at the time the instrument was signed. Trust beneficiaries may become disabled or improvident. Family members may develop conflicts. Tax laws may have radically changed. Unfortunately, upon the death of the ancestor, the trust and will become irrevocable. Notwithstanding, there are answers to certain of these post-death problems.

Sibling or family conflict following the death of a parent or ancestor is, unfortunately, all too common. The conflict often takes shape in a will contest that seeks to alter the deceased’s intentions. Whether or not a will contest is a good thing depends on which side of the contest you support. As estate planners working with a parent or other ancestor we strive to ensure that our clients’ wishes are not altered by such post-death litigation.

We often add a no-contest (also called “in-terrorem”) clause to a will to address the possibility that someone may challenge its validity. A no-contest clause says, in substance, that if anyone contests the validity of the will then they shall receive nothing under the will. Do such clauses actually work? Generally they do but there are limitations. In some states, including Florida, such clauses are unenforceable. Other states have limitations on their enforceability.

New York law does enforce no-contest clauses except in circumstances such as:

  • Where the will contest is brought by an incompetent or infant.
  • Where the contest seeks to establish the will as a forgery or that it was revoked by a prior will and there is probable cause (a “good reason”) for such assertions.
  • Where the proceeding is limited to a preliminary examination of the witnesses to the will, the nominated executors or the party seeking to submit the will to probate.
  • A proceeding asking the court to interpret the provisions of the will.

It is important that every estate plan include a thoughtful discussion of the probability of family conflict and the use and effectiveness of a no-contest clause.

In other cases, the trust or will is written assuming one set of circumstances (such as the sequence of death, the state of a beneficiary’s residence, the competency of a beneficiary or the tax law) and, over time, a very different set of facts unfolds. Tools that can ameliorate problems caused by changed circumstance include the exercise of a power of appointment or an amendment to the trust document.

Many trusts grant someone (generally a beneficiary) power to act regarding trust property. Such powers, called “powers of appointment,” generally allow the power holder to redirect trust property among a group of people. For example, a parent may give a child the power to appoint trust property at the child’s death among the child’s issue. If such power is not exercised by the child the trust is divided equally among the children of the deceased child. In this example the power of appointment could be very helpful to disinherit or limit the share of a grandchild at any time and for any reason as determined by the power holder exercising the power of appointment.

If the trust does not include such a power of appointment, a change in the language of the trust may be possible by amending the document. This is an exception to the doctrine that a trust is either irrevocable as provided in the instrument or becomes irrevocable upon the death of the person who set up the trust (the “Grantor”). New York law allows for amendment or revocation of a trust under certain specific circumstances. Under one statute, if the Grantor is living he or she can revoke a trust with the consent of those who have a beneficial interest in the trust. If the Grantor is deceased, the Trustee can amend a trust if the requirements of the statute are met. The permitted amendment may be a simple administrative change or a substantial change, essentially replacing the existing trust with a new trust.

When an irrevocable trust no longer serves the purpose for which it was originally intended, an examination of the trust document and New York law may reveal effective tools to change trust provisions in changed circumstance not originally contemplated at the time of drafting.

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