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Updating Living Trusts: Amendment vs. Restatement

time to change

One of the features of a revocable living trust is that it is easy to amend.  When a trust is created, the person(s) who creates the trust (the “grantor”) will typically reserve full rights to amend or restate the terms at any time in a writing delivered to the trustee.

This power to amend is important because circumstances often change over time.  There are a myriad of reasons to update your estate plan and there is no limit on the number of times you may edit your plan.

But, as you make changes, it’s important to consider how those changes might effect the ease of administration of your trust.

I recently reviewed a trust plan consisting of an original declaration of trust followed by nine (9!!!) different substantial amendments executed over a number of years.  Each amendment changed separate and various sections of the trust in different ways.  Some sections were changed multiple times.  In the end, very little remained from the terms of the original trust.

This is laudable in the sense that the grantor clearly put a great deal of thought into what he wanted and he made appropriate adjustments as circumstances changed.  Yet, trying to actually read and reconcile all of the trust terms in the administration phase becomes increasingly difficult when you are forced to toggle back and forth between 10 different documents.  A detailed chart had been created to summarize the various provisions with cross-references back to the specific amendment that controls each section.  Ultimately, it’s more confusing that it needs to be.

A better approach is to restate the trust in its entirety at appropriate intervals.

A good rule of thumb might be no more than 3 or 4 amendments.  Even fewer if the changes are numerous or substantial.  Beyond that, it’s time to restate the terms in their entirety, even if only for the purpose of reconciling all of the existing provisions into one cohesive document.  With current word processing capabilities, once you have your provisions it’s not difficult to put together.  The benefits of a single trust governing document include:

  • Easier for you, the client, to understand
  • Easier for the successor trustee(s) and beneficiaries to understand and administer
  • Less opportunity for the introduction of undesirable ambiguity or mistake
  • Less paperwork to retain and provide to interested parties and financial institutions
  • Less chance to misplace an important governing document
  • Ability to shield prior amended terms from the view of beneficiaries

Significantly, when the trust is amended in full, the actual title/name of the trust will not change.  Think of it like remodeling your home; your address does not change.  With this in mind, it will not be necessary for you to re-title assets already held by the trust or to provide copies of the new governing document to financial institutions.

These same principles also apply to making changes to a Will (called a “codicil”).  I typically prefer preparing a new Will with the desired terms, rather than codicils, for the same reasons highlighted earlier, and also because production of the original Will/Codicil is so crucial, and adding codicils increases the chance that an important original document will be misplaced.

Image courtesy of Stuart Miles / freedigitalphotos.net