AMENDING THE TRUST OR RESTATING THE TRUST…WHICH IS BETTER?
All things change over time, and it is common for an estate plan to have to be updated to reflect alterations in family, assets and goals. Indeed, one benefit of a revocable intervivos trust is that it can be altered by the creator to reflect those changes whenever the creator of the trust wishes. The rigidity of irrevocable trusts is one reason our firm only recommends using those in unique circumstances.
It is not uncommon for a revocable trust to be altered half a dozen times over the years and most alterations are relatively minor. The amount going to a child or grandchild may be increased. A new addition to the family may result in gifts going to that new child. A marriage or death may require reallocation of assets.
A question that can arise as the changes mount up over the years is whether the original trust should be amended or whether the entire trust should be “restated,” that is, the full trust is altered and executed again rather than a much shorter document which simply amends the original trust. Whether to amend or restate is the subject of this article.
Amendments versus Restatements:
An amendment is simply a document, notarized in signature, which states it intends to amend a portion of the original trust (and subsequent amendment(s)) and indicates clearly what alterations are intended. A typical verbiage would be “The Trust executed on X date is hereby amended as follows: Section 1.01 is stricken in its entirety and in its place is inserted the following Section 1.01: ____________.” Good drafting normally has the amendment state that the remainder of the Trust remains in full force and effect.
A restatement does not amend the trust but restates the entire trust and includes whatever changes the creator wishes to be included. It normally revokes the earlier trust entirely and replaces the old trust with the new version. The old trust becomes null and void, replaced entirely by the restated trust.
Most of the time the bulk of the original trust remains intact in the restated trust. After all, much of the verbiage of a trust is standard wording required by good drafting practices or statute. Nevertheless, a restatement replaces and does not merely alter the original trust.
Why Restate Rather than Amend?
- Complexity of Multiple Amendments. As the number of amendments increases, the document becomes increasingly complex. Our office once had a trust that had been amended fourteen times by prior counsel. Each amendment had to be integrated into the prior and subsequent amendments and the document, which was already perhaps thirty pages long, had become over eighty pages long with constant references in the amendments to certain prior provisions and amendments. The creator had a difficult time following all the changes that had been made and wading through the numerous amendments, many of which had themselves been revoked by subsequent amendments. As the client commented, the later amendments sounded similar to the Internal Revenue Code as they referred back to earlier alterations of earlier provisions.
- Privacy of Alterations. If one amends the Trust, then the Trust and all its amendments become a single document in terms of providing the terms of the Trust. That means that all beneficiaries are entitled to review the entire set of amendments, even if later revoked, and all the changes become effectively a matter of public knowledge. This can become problematical if the creator has changed his or her mind as to alteration in gifts or restrictions on gifts.
One of our clients was dismayed to discover that a beneficiary, who had overcome a mental illness, would have the entire family aware of that fact since earlier provisions had specified restrictions on access to assets until a psychiatrist approved. A beneficiary previously disinherited or receiving less than before would also be able to determine what alterations in bequests occurred over time and such discoveries can cause a great deal of tension within families.
Put simply, whatever changes have occurred over the years in the amendments will be specified in the documents for all to see.
With a restatement, the earlier versions of the trust and the amendments are null and void and one can direct counsel to either destroy or keep confidential earlier versions which are now null and void.
- Ability to Simplify. Over the years complex provisions that were needed due to the age of beneficiaries can be eliminated and the subsequent trust may actually be shorter and simpler than earlier versions. As an example, one could have inserted various provisions providing for specified bequests based on college education or marriage or the birth of a grandchild which are no longer required due to the beneficiary already starting a family. One client, who had inserted various provisions due to fear that a child was a drug addict was able to eliminate all the restrictions due to a decade of drug free life of that same child. And note that eliminating those provisions in a private manner by restatement was also of value since otherwise all the family would be aware of the past restrictive provisions, including the children of that child.
Why Amend Rather than Restate?
- Fast and Less Expensive. Restating a trust is akin to creating a brand new trust and the competent attorney will treat it just as seriously as the initial creation of the trust. Since the old trust is made null and void by the restatement, one is starting from scratch and the drafting and cost of same reflects that fact.
For a relatively simple change, such as increasing what is going to a particular beneficiary or eliminating a now deceased beneficiary, an amendment is relatively inexpensive and easily accomplished. A typical amendment will add beneficiaries, such as new grandchildren, and not require a full restatement.
Most law offices can put together an amendment in a few days, while a restatement can take weeks or longer.
- No Need to Alter the Schedule of Assets. A key aspect of a trust is the list of assets that are transferred into the trust, usually entitled Schedule A. A simple amendment does not alter that schedule (unless that is required.) A restatement requires a new Schedule A and, depending on the terms of the Restatement, may require contact with a financial institution or recorder to so reflect.
Both techniques have pros and cons and the decision as to which to use will depend on internal family dynamics and how many amendments have already been drafted and put into effect. As one client put it when considering a eighth amendment, “Maybe it’s time to bite the bullet and just start from scratch with this thing…” He was right.