Broken Estate Plans May Need to be Fixed

There is a tendency to view estate planning as a static skill and the process of having an estate plan created as a one-time task. Both are misconceptions. While certain basic estate planning principles have held true over the years, new strategies are developed, arguments are made, and legislation is passed which alter what the law is in this area and how it is applied. Similarly, proper estate planning is rarely just a one-time event. Besides accounting for legal changes, the plan must also be modified down the road to account for life changes.

On top of accounting for legal and life changes, when an estate plan for local residents is created poorly the first time, often by those without direct experience in this area of the law, it is often necessary for more seasoned New York estate planning attorneys to “fix” the “broken” plan. The process of correcting or changing parts of an estate plan was discussed last week by Forbes.

The story noted that changing items in revocable arrangements (wills and revocable trusts) is usually pretty straightforward–so long as the settler or testator is still alive and competent. Altering a will or trust is much more difficult after that time. Considering that many estate planning documents get placed into a safe place and only examined after death, many are often challenged to “fix” the plan at the very moment when it is supposed to be put into action. This process is very case specific, and so it is hard to make generalizations about legal ways to correct potential problems in irrevocable planning documents. However, some basic methods of doing so come up time and again.

For example, there may be some ambiguity in one of the documents that requires some sort of correction, such as two different heirs being given the same bequest. Correcting this problem usually requires a court proceeding where the construction of the legal document will be analyzed. In these cases the court will generally try to read the document in such a way that the overall intention of the trust or will is respected. Some statutory law may guide the court in how it conducts its analysis. Also, if a “scrivener’s error” occurs–essentially a typo or accidental omission–then a court proceeding seeking a reformation may be necessary.

Outside of the courtroom, amendments can sometimes be made to these documents. Revocable trusts, by their nature, allow for amendments. Irrevocable trusts generally do not. However, in certain situations to correct problems that may not impact dispositive provisions of the document, amendments might be allowable.

Finally, one of the more sophisticated ways of correcting problems with an irrevocable trust involves “decanting.” Decanting is only explicitly allowed in a few states–including New York. Essentially, it refers to the process of pouring one irrevocable trust into another which has more favorable terms. In this way, decanting may allow for updated trust provisions, changes to administration/management, elimination of restrictions, and many other alterations. Obviously, these actions can get quite complex. To explore these options in our area, seeking the advice of experienced New York estate planning attorneys is essential.

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Succession Plans Are Essential for Family Businesses

High-Profile Examples Highlights Need for Clarity in the Estate Planning Process

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