united-states trusts-and-estates
Amending a Defective Irrevocable Trust
<p>By a defective trust, I mean a trust that meets the definition of a trust for estate tax purposes but not income tax purposes.</p>

<p>Consider an irrevocable defective trust that is setup without going to court and without getting a separate EIN number for the trust. Can such a trust be amended? Would it require a motion to be filed with a court?</p>

<p>The trust was setup in New Jersey.</p>

<p>It depends on several factors you haven't laid out. Who the beneficiary is,  who is the Trustmaker and who is the trustee. What type of assets are in the trust? And is your concern tax on DNI? . </p>

<p>Do you mean an IDIT or BDIT or the Grantor Type trust <a href="https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-J/part-I/subpart-E" rel="nofollow noreferrer">(sec 671-8)</a> </p>

<p>Its a fascinating subject that I know a fair amount about (with a PLR along the way! Woo hoo! ) but you haven't given enough variables to solve the equation. </p>

<p>You would need to have a judge sign off on changing the clause regarding the successor trustee. It's really at the judges  Discretion . . . </p>

<p>The judge would likely confirm that there would be no adverse changes to the beneficiary,  and that the change is being made for convenience, not to try to change the class of beneficiary or add additional beneficiaries or give power to a non institutional fiduciary who may have ulterior motives.</p>

<p>It could also be done judicially through decanting into a new similar trust.   </p>

<p>In an intentionally defective trust, it is generally possible for the grantor to unilaterally disclaim or waive the rights of the grantor that make it a grantor trust for income tax purposes without court action and without truly amending the trust, typically by providing a signed and sometimes also notarized document to that effect to the trustee.</p>

<p>There are mechanisms for amending trusts either contained in their own language, or to reform them in a court process for truly having unintended features. But, these are not good options for an intentionally defective trust.</p>
