California law allows for the modification or termination of otherwise irrevocable trusts in certain circumstances.
Preserving Public Benefits
Among the reasons for modifying a trust are the change in the circumstances of a beneficiary. We frequently see situations where the proposed distribution from a trust would cause a beneficiary to lose their much needed needs based public benefits, such as Medi-Cal and SSI. The grantor of the trust may have created the trust without the knowledge that the person that they wanted to benefit was receiving or would receive needs based benefits, which that individual will lose if they receive the well intentioned gift from the trust. In many circumstances the original trust can be modified to allow for the creation of and distribution to a special needs trust that will both benefit the intended beneficiary with additional resources and preserve the beneficiary’s right to receive needs based public benefits.
Removing Bypass Trusts
Another common reason to modify a trust is the removal of a bypass trust that was meant to allow a married couple to avoid federal estate taxes in the past, when the federal estate tax exemptions were very low. The burden of the administration of the bypass trust under the current federal estate tax exemption amounts may be too great and a court order may be sought to modify the trust to remove the bypass provision.
There are circumstances in which an irrevocable trust is no longer needed or has become too small to bear administrative costs. In these circumstances there are California probate provisions that may allow for the termination of the trust with a court order.