If a trust is revocable it can generally be amended and turned into an irrevocable trust. This company has performed this service for many clients turning living trusts into Cook Islands asset protection trusts, for example. The advantage is that if the trust assets have been inside of the domestic revocable trust from one to two years already, and the trust is converted, the statute of limitations clock is considered to have already expired, thus preventing an asset transfer challenge in the Cook Islands.
This can also happen automatically when the person who created the trust dies. If the grantor or creator of a revocable trust dies, this can trigger the trust to become an irrevocable trust. The reason for changing from revocable to irrevocable at the grantor’s death, is to lock down the trust assets for proper distribution to family members and other later named beneficiaries or loved ones.
The bottom line is that if a trust is revocable it can generally be amended and turned into an irrevocable one. Many living trusts automatically convert to ones that cannot be amended once the grantor dies.
A contingency is a condition that needs to be met before funds will be allowed to be distributed to the beneficiary from the irrevocable trust. The trust agreement may list any specific contingencies that apply to the irrevocable trust (such as requiring the beneficiary to graduate from college before receiving funds). The Settlor may specify that the beneficiary must independently produce a certain amount of investment capital and the trust will match that amount.
The trust may specify that a beneficiary must achieve a certain level of educational proficiency, such as a master’s degree or doctorate before a specified amount of funds are distributed to the beneficiary. So, the irrevocable trust can help to insure that trust fund recipients pursue certain life goals rather than sitting around waiting for a handout.
A grantor may state that all members of a beneficiary class need to do something before any of them receive any money or assets from the trust. In this case, all of the beneficiaries must all fulfill that request before the contingency is resolved. One example may be that all living children must graduate from college before any children receive money from the irrevocable trust.
The truth is, most irrevocable trust beneficiaries have a contingent interest list. This is because grantors create trusts to benefit family members in the same life-boat (as it were). These rules could include a group of beneficiaries who are grandchildren of the grantor as a class, and who graduate from college before they could receive trust assets. Because changing from revocable to irrevocable is automatic, this teamwork requirement cannot be lifted. It can be an effective method of getting siblings to work together and spur one another on to accomplish the desired achievement.