Reasons for Modification

A trustee may find that the terms of a trust are outdated, too restrictive, or not in the best interests of the beneficiaries.

For example, a trust might restrict trust investments to government bonds at a time when prudent investment strategy demands that a portion of the portfolio be invested in equities; or a trust may prohibit the trustee from selling any of the original trust assets, some of which may no longer be prudent investments for the trust.

The provisions regarding the succession of the trusteeship may no longer be appropriate in light of current ages and experiences of nominated individual successor trustees or industry practices of corporate trustees.

The trustee or beneficiaries also may discover that the dispositive provisions no longer carry out the settlor’s intent or are impossible to fulfill under present conditions.

Settlor’s Power to Modify Trust

To modify a trust effectively, the settlor must have at least the same testamentary capacity that is needed to execute a will.

California Probate Code §15401(c) provides that a trust may be modified by an attorney-in-fact under a power of attorney only if the trust instrument expressly permits such modification. Probate Code §4264(a) provides that the power of attorney must expressly authorize the agent to make modifications to a trust.

Trusts governed by California law are revocable unless the trust instrument states otherwise. Prob C §15400. Under Prob C §15402, a settlor who can revoke can also modify the trust unless the trust instrument provides otherwise.  Most revocable living trusts drafted by California lawyers specifically permit both revocation and modification of the instrument and specify the method to be used.

NOTE: If a trust holds community property, the trust generally provides that both settlors must act together to modify the trust. This provision helps to ensure that trust property retains its character as community property.

Probate Code §2580(b)(11) allows modification as well as revocation of a trust under the substituted judgment provisions by a Conservator or other petitioner. An agent under an appropriately drawn durable power of attorney should be able to provide such approval if the spouse is opposed to the proposed action and modification is expressly permitted by the trust instrument. See Prob C §§4264(a), 4465, 15401(c).