Don’t Use an Irrevocable Trust Without This One Thing
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A question I often get is about the difference between a revocable trust and an irrevocable trust. Once I explain it, people sometimes hesitate about irrevocable trust planning. Generally, you’d use an irrevocable trust for asset protection, estate tax planning, or wealth transfer purposes. Today, we’re going to discuss how to make an irrevocable trust essentially “revocable.”
Many are cautious about irrevocable trusts because they assume it lacks flexibility—once it’s set up, you’re locked in. If personal circumstances, family dynamics, tax laws, or trust laws change, the trust could become ineffective. Imagine setting up a trust in 2024; in 75 years, a lot could change, and that trust may no longer serve its purpose. Over the past 20 years, we’ve seen more changes in trust law than in the last two centuries, including the introduction of the “trust protector,” which can add flexibility to an irrevocable trust. This is how an irrevocable trust can become revocable, in a sense.
A trust protector is part of a “directed trust” structure, where various responsibilities are distributed among individuals best suited for each role. The trust protector is often called the “super trustee,” overseeing the trust without being the trustee, who is responsible for managing assets, administration, and distributions according to the trust’s terms. Not every state has trust protector laws, and in states without these laws, adding a trust protector could carry legal risks. For instance, South Dakota has well-defined trust protector laws, minimizing legal risk for everyone involved, including the trust protector.
So, what does a trust protector do? Unlike with a revocable trust, where the grantor can amend or revoke it, with an irrevocable trust, you can grant the trust protector the authority to make amendments, revise provisions, add or remove beneficiaries, and transfer assets from one trust to another. This means that even if the trust becomes outdated decades down the road, the trust protector can adapt it as needed. If necessary, they could even create a new trust and transfer assets to it.
Choosing a trust protector requires someone you trust deeply. It shouldn’t be a family member or someone subordinate to you, like an employee. Often, people select an attorney, financial advisor, close friend, or CPA. You can establish a succession plan, where the trust protector can appoint a successor or where you can name successors or even create a trust protector committee to ensure continuity over time. A trust protector can also veto distributions, adding oversight to the trustee’s role.
If you don’t have a trusted individual to serve as a trust protector, you can still include provisions for a future appointment. You could grant authority to name a trust protector to someone else, such as the trust beneficiaries, who could petition the court if necessary. This way, you have flexibility without an immediate designation.
Some attorneys might not suggest a trust protector, perhaps due to their unfamiliarity or aversion to legal risks. However, I believe clients should have options to tailor the trust to their needs. If flexibility is important to you, consider discussing trust protectors as part of your trust planning.
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Stuart Green Law combines modern South Dakota trust law with integrated estate planning, wealth management, and fiduciary services for families throughout the United States and internationally. The firm’s approach is built around selecting the strongest legal framework available, maintaining continuity of planning judgment, and bringing every part of the family’s wealth strategy into alignment with its long-term objectives.
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