It’s great when the owner of a trust, parents for example, are of sound mind and can think clearly to make key decisions. But what happens when something goes awry and they aren’t capable of making these decisions any longer? How do things get changed or modified in their trust when they are deemed to be incompetent to make these types of decisions?
Take the example of when a family member needs to amend or modify a parent’s trust for some reason. How can they do this and still stay within the law without causing the trust to be invalid? And how can they make a change so that the entire trust is enforceable when the owner of the trust can’t make these changes due to incompetence?
Most trusts are amendable, but you have to make sure that is the case, says The Times in its article “Estate Planning: Who can amend a trust?” Once you know that it is amendable, you’ll need to verify exactly who can amend it. The most logical person to do this would be the Settlors.
If the parents, who would typically be the Settlors, lack the capacity to amend the trust, things can get complicated. The first thing you need to do is determine whether they are able to make any changes on their own or not. Are they simply confused about what the changes mean or are they deemed incompetent? If they are overwhelmed by the reasons for the change and don’t understand it, you can try to simplify it or work with a social worker who might be able to frame it in a way they can understand. However, if they can’t understand the changes because they don’t have the mental facilities to execute an amendment, you’ll need to take certain steps to make sure any changes to a trust are done properly.
Let’s assume they lack the mental capacity to execute an amendment. The next step is to locate an Attorney-in-Fact (AIF), who is appointed under the terms of the Power of Attorney (POA). There are POAs that grant the authority to an AIF to address estate issues and documents, including a living trust. If the authority is there, there are a few additional matters you will also need to address.
First, does the trust allow an AIF to amend it? You’ll need to examine the provisions in the trust to see if there are any limitations about who can make amendments. It’s possible the AIF may be permitted to do this because it is listed in the trust. However, it could also mean that the AIF is unable to amend the trust, depending on how the trust was prepared.
Even if the trust does have an AIF clause in the trust, does the AIF have “self-dealing” issues? A “self-dealing” issue relates to whether or not the AIF is contemplating any actions that may benefit them. If the amendment to the trust could benefit the AIF in some way, they may not be able to make the changes they want to make.
If these approaches are unsuccessful, the successor trustee may be able to docket the trust with the court and ask it to issue an order that would allow the trustee to deviate from the terms or amend the trust. The court order will take time and money to execute but may be the only remaining option if you want to amend the trust. However, it protects the person making the amendment by making it very clear that they requested and were granted the necessary permission from the court. This can be very important if anyone questions the change to the trust at a future date.
This is a very delicate and complicated area of estate planning when the originator of the trust is deemed incompetent. It should be a point of discussion with your estate planning attorney when you are putting your plan together. Once a plan is put together and this provision is not in the plan, definitely get a plan in place before the issue of incompetency comes into play. It can save you and your loved ones a lot of hassle, time, and money. This is not something you want to do without proper advice.