September 8, 2013 Fort Collins, Colorado
This week an IRS ruling allowing the change of an irrevocable trust crossed my desk. It brought back memories of a favorite lawsuit from years past. Lawyers usually assume that irrevocable means unchangeable. Unfortunately many lawyers and their clients incorrectly believe that this is an ironclad rule.
A few years ago a man in eastern Colorado died with a will that left his large farm to his siblings. Since he wanted the property to be used for farming, as a young man, he created a trust which prohibited it from being sold for the first 20 years after his death. That made sense when he was a young man, but he did not die until he was about 70 years old. At that time his siblings were that age or older and were in no shape to work the farm. They needed to sell the farm and use the money for health, living expenses, etc. So, they started consulting lawyers to find out what could be done. The local lawyers told them that because the trust was irrevocable it could not be changed. The family then consulted the the lawyers in the big firms in Fort Collins and were told the same. When they came to me, I did some research and found a statute that indicated that if all the beneficiaries agreed the trust could be changed. So, we forged ahead. Some distant relatives, hoping to get some of the estate contested the agreement. The Colorado Court of Appeals and the Colorado Supreme Court agreed that the beneficiaries upon agreement could change the unchangeable/irrevocable trust.
The recent IRS ruling reminded me that when we make assumptions we are often wrong. Hopefully each day we will be able to keep an open mind as we try to solve problems.