Listen to this post
Highlighted In re Trust Under Deed to Walter R. Garrison

“This irrevocable trust no longer meets our needs, what options do we have?” This is a question that clients periodically ask. A recent Pennsylvania Supreme Court case, In re Trust Under Deed to Walter R. Garrison, illustrates a trend among states to grant greater flexibility to modify or terminate irrevocable trusts.

In re Trust Under Deed of Walter R. Garrison, Walter R. Garrison was the creator (or “Settlor”) of several irrevocable trusts during his lifetime. He and the trust beneficiaries relied on the Pennsylvania Uniform Trust Act (the UTA) to modify the terms of three separate irrevocable trusts. Specifically, they added a provision that allowed a majority of the income beneficiaries of the trust to remove an independent trustee, with or without cause, and appoint a replacement independent trustee.

After the death of the Settlor, the beneficiaries relied on the new trust terms to replace the independent trustees, who then brought an action challenging their removal. The trustees argued that a separate section of the UTA exclusively applied to changes of trusteeship and that the beneficiaries’ change was impermissible. The Pennsylvania Supreme Court disagreed. It held that the trust amendment provision of the UTA allowed all interested parties to terminate or modify an irrevocable trust in this manner by unanimous consent. In doing so, it distinguished prior precedent and rejected the trustees’ formalistic arguments in trying to block any change.

Takeaways: The ruling of the Pennsylvania Supreme court in this case exemplifies an important shift in mindset around the rigidity of irrevocable trusts, many of which can last for numerous generations, and lays the groundwork for clients seeking to make changes to irrevocable trusts by modification, by amendment, or by decanting.

For example, under the Connecticut Uniform Trust Code, a trust created after January 1, 2020, may be modified or terminated with the agreement of the Settlor, the trustee, and the beneficiaries. See Connecticut General Statutes § 45a-499ee. A trust created before that date may only be modified or terminated upon consent of all the beneficiaries if (a) the modification is not inconsistent with a material purpose of the trust, or (b) terminated if continuance of the trust is not necessary to achieve its material purpose.

Furthermore, Connecticut also allows for:

  1. The removal of trustees based upon a substantial change of circumstances or upon request of the beneficiaries where certain other conditions are met. See Connecticut General Statutes § 45a-499ww.
  2. The termination of a trust where:
    (a) all of the beneficiaries consent and certain other conditions are met,
    (b) some of the beneficiaries consent and the non-consenting beneficiaries’ interests will still be adequately protected, and other conditions are met, or (c) if the trust has encountered unanticipated circumstances rendering the trustee unable to administer the trust effectively. N.B., there are additional nuances to consider and requirements to meet. See Connecticut General Statutes §§ 45a-499ee & 45a-499ff.

Similarly, in New York, an irrevocable trust can be amended with the agreement of the grantor and all of the trust beneficiaries.

Although applicable law in Pennsylvania, Connecticut, and New York is not uniform, it appears to be general trend across state-lines to increase flexibility, through formal statutory law, in allowing interested parties to make significant changes to irrevocable trusts.

_____________________

Please contact a Wiggin and Dana attorney if you have questions about modifying irrevocable trust agreements or if you are seeking advice on setting up and irrevocable trust. We would be happy to speak with you.