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Can a Beneficiary Be Removed From an Irrevocable Trust?

Can a Beneficiary Be Removed From an Irrevocable Trust?

April 11, 2024

Are you worried that you may one day desire to change your beneficiary on an established trust? If you are unsure what the future will hold, you may want to hold off on forming that irrevocable trust. 

Irrevocable trusts come with many estate planning benefits, including tax advantages and asset protection. But one significant downside of irrevocable trusts is that they are more or less permanent. A beneficiary on an irrevocable trust cannot be changed – at least not without great effort. On the other hand, a revocable trust offers you a greater degree of flexibility. 

Here is what you need to know about changing the beneficiary on an irrevocable trust and how you can take the steps necessary to future-proof this trust. 

Can a Beneficiary Be Removed from an Irrevocable Trust?

When you fund an irrevocable trust, you do so with the best interests of your beneficiaries in mind. However, there is always the possibility that you may want to alter who receives the money and assets within that trust. This is especially true if you fund it earlier in life and want to include a new child or a grandchild as a beneficiary moving forward. 

Generally speaking, you are not able to change the beneficiary on an irrevocable trust. In some unique situations, it may be possible but will ultimately prove to be extremely difficult. This ability depends on the trust terms. 

For example, you may wish to give your trustee the power of appointment when setting up the trust. This allows your trustee to remove a beneficiary from the trust if the power of appointment is written in such a way that makes it clear this is a possibility.  

On the other hand, a beneficiary does have the option of renouncing their interest in any given trust provided they have consent from the trust’s other beneficiaries. If everyone cannot agree to the changes, there could be a major battle over the trust fund. All it takes is one beneficiary to refuse the change and a lengthy, drawn-out court battle may take place. 

Tips to Future-Proof Your Irrevocable Trust 

As you can see, the ideal situation would be to think far into the future to ensure that your trust is set up exactly how you want it. Take some time to seriously consider who you want to name as a beneficiary and whether they would accept your generous offering. 

Here are a few of our best tips to future-proof your trust. 

Create a Comprehensive Plan 

When setting up an irrevocable trust, the biggest mistake is often a lack of proper planning. The best thing you can do is take some time to create a thorough, comprehensive plan before you have a trust attorney draw up the paperwork for the trust. Once you sign on the dotted line and the ink is dry, the trust fund is mostly permanent and will require an uphill battle to make any changes – if that is even a possibility. 

Make sure to talk about every angle with your trust attorney to ensure that you are thinking about it before you set anything in stone. This will save you lots of headaches, turmoil, and money in the long run if you decide you want to name a new beneficiary in the coming years. 

For example, if you have a charitable remainder trust and want the freedom to change the charity later on, you can name a donor-advised fund as the charitable beneficiary. Knowing about this CRT management strategy and including it in your plan offers you future flexibility.

Choose the Right Terms 

Of course, there will be some times when you can word the terms of your trust to allow for the maximum amount of flexibility. Simply choosing the right verbiage can set the stage for any future modifications you may want to make. 

Be mindful of how the terms are laid out in the formation of the trust, and be sure to ask lots of questions of your trust attorney to ensure that you control every aspect of its future benefits. 

Work with a Trust Attorney 

As you might have gathered by now, your best option is to work with experienced trust attorneys when setting up a new irrevocable trust. While you may be able to fund a trust without using an attorney, you will be missing out on the opportunity to ask questions and to set creative terms that will allow you more flexibility in the future. 

A trust attorney is skilled in helping you establish a trust that works for you and your beneficiaries. Make sure they are fiduciaries who can advise you on what is in your best financial interest now and into the future. You may also need to consult with other professionals like tax and financial planners to get the most benefit out of your irrevocable trust. 

Protect Your Legacy Well Into the Future

Magellan offers a comprehensive one-stop shop for all of your trust planning needs. Our team of experts is well-versed in the specifics of irrevocable trusts, and we can help you establish the terms according to your needs and wishes. We also house estate, financial, legal, and tax planning experts under the same roof, ensuring a well-coordinated plan that benefits you and your loved ones for decades to come. 

If you have questions about how an irrevocable trust could factor into your estate planning and financial legacy, contact us today to see how we can help!

 For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.