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What You Didn’t Know About An Irrevocable Trust

You may have heard people discussing “revocable,” “irrevocable,” and “living” trusts interchangeably. Trusts can be a good way to transfer your property after your death and let your heirs avoid the probate process. Trusts may also add unnecessary layers to small estates that would not have been probated anyway.

When it’s time to discuss establishing a trust with your attorney, one of the first things to do is make sure you clarify the difference between “revocable” and “irrevocable” trusts. The distinction is important for the settlor—you—to understand before beginning the process.

irrevocable trust

Types of Trusts

The testamentary trust, as the name implies, is created when the will is written and executed. It only becomes effective when the settlor dies. The most common type of testamentary trust is one that provides for minor children when their parents die.

More common today is the inter vivos or living trust. This trust is created while the settlor is alive and allows the settlor to establish what will and will not be placed in the trust. There are two subtypes of a living trust.

  • Revocable trusts can be altered or amended by the settlor during their lifetime. The settlor is usually also the trustee and may be a beneficiary of the trust. If the settlor chooses, a revocable trust can be terminated before the settlor’s death.
  • Irrevocable trusts may not be altered by the settlor or anyone else. Once property is transferred into an irrevocable trust, the settlor no longer has direct control over it, although the settlor may be the trustee of the trust. Revocable trusts become irrevocable upon the death of the settlor.

In Iowa, great deference is given to the language of the trust and the intent of the settlor. The Iowa Trust Code provides that the terms of the trust shall always control, even if the language of the Code differs. If you have pressing questions about your will or trusts, don’t hesitate to contact our experienced legal team today.

Terminating an Irrevocable Trust

Once an irrevocable trust has been created, terminating or modifying it becomes difficult.

Because the language of the trust always controls, terminating or modifying a trust is not as straightforward as it seems. The Iowa Supreme Court ruled this year that if one settlor has died, the survivor may not amend the resulting irrevocable trust unless the trust itself so states.

In Little v. Davis, No. 21-0953 (Iowa Sup. Ct. May 6, 2022), the spouses had placed the husband’s separate farmland property in a revocable trust to protect it for his children in the event he predeceased his wife. The trust stated that when the first spouse died, “the surviving settlor “shall not have the power to amend, revoke and/or terminate the [trust].”

The wife predeceased her husband. The husband decided, with the consent of all four beneficiary children, to amend the trust following her death. The husband died the next year, and one of the wife’s children sued, claiming the amendment should not have been allowed. The Supreme Court ultimately agreed, citing the Iowa Trust Code that required all settlors to agree to an amendment. Since the deceased spouse could not agree, a court order was required to amend the trust.

Had the husband gone to the court to request an order permitting the amendment, it might have been granted; however, this was not the case. Reach out to Arenson Law Group, PC today.

Implications for Your Estate Planning

This should not deter anyone from establishing a revocable or irrevocable trust if they feel it is necessary to protect their property. In the above case, both parties agreed that the husband’s property should be reserved in trust for his own children. The language used when drafting a trust is of critical importance.

Be sure that your intentions are clear. The court will always defer to the language of the trust since you won’t be here to explain what you wanted. In the above case, the spouses could have saved everyone a lot of litigation if they had said, “we want the husband’s separate property to go only to his children no matter who dies first.”

will/trusts law books

Contact Us

You should discuss your plans with an experienced estate planning attorney before committing anything to writing. At Arenson Law Group, PC, we will review the options with you and make sure we understand exactly what you want to happen upon your death. That way, when we draft your trust, no mistakes will be made.

Call the Cedar Rapids estate planning lawyers of Arenson Law Group, PC at (319) 363-8199 for a consultation about your estate plan. We will review your finances and property with you so that you can be sure your final wishes will be carried out as you intend.