October 31, 2014

Trust Amendment vs. Trust Restatement


Once a client executes a revocable trust, a common follow-up question is what to do in case the client's situation changes that necessitates a change to their trust. For example, they get married, decide to change a beneficiary, have a child, move to another state, inherit a large sum of money, etc. The two options are to either execute an amendment or a restatement.

Amendment

When a trust is amended, the amendment should specifically cite the section that is being amended and the contents of the amendment. For instance, assume Section II of the settlor's trust originally calls for Thierry Pires to be the successor trustee and now the settlor wants to have Robert Henry be the successor trustee. The amendment would state that the settlor is invoking their right to amend the trust and Robert Henry is now the successor trustee, i.e. Section II would be written to reflect such.

A benefit of an amendment instead of a restatement is that it is generally simple to complete. The client merely needs to state what they want changed to the attorney.

One detriment of an amendment instead of a restatement is that multiple amendments can be cumbersome to harmonize with the trust. If the settlor amends their trust multiple times, the trust and the amendments must be read and interpreted as one document. This sounds like an easy task but in practice it is not. Cross-referencing the trust with the amendments is time-consuming.

Another detriment is that if the settlor amends their trust to remove a child as a beneficiary, the child will be able to see that they were cut out of the trust. A child, as an heir, is always entitled to see a copy of a parent's trust. See Prob C § 16060.7. Thus, the child can see that the parent originally included them as a beneficiary but later changed their mind. At best it invites scrutiny and at worse it triggers litigation.

Restatement

A restatement is essentially the replacement of a settlor's original trust. Though the restated trust uses the date of the original trust's execution, e.g. March 5, 2004, the restated trust is a brand new document.         

A restated trust is usually preferred to an amendment when the change are either too difficult or lengthy. For example, if the settlor wishes to revise the distribution portion of their trust and include specific instructions about the timing and amount of distributions, a restatement is preferred to an amendment.

A benefit of a restatement instead of a amendment is that it reduces the amount of paperwork. Since the restated trust replaced the original trust, the successor trustee does not have to piece together the original trust and the amendment(s). Alternatively stated, it is much easier to manage one document than multiple documents.

A detriment of writing a restated trust instead of an amendment is the cost. An attorney will have to devote more time towards drafting a restatement than an amendment because an entire new trust has to be created. Since the attorney has to devote more time to the matter, the fee will be higher.