CONTRIBUTED CONTENT: What can you do when an “irrevocable” trust is broken in Idaho?

An irrevocable trust is built to be locked. That is the entire point: the person establishing the trust gives up control in exchange for creditor protection, Medicaid planning, or a tax result that only works if the assets are truly removed from that person’s control and ownership.

Then twenty years pass. The tax law that justified the structure is repealed. A beneficiary develops a disability and the trust distributions will cost her public benefits. The named trustee is a bank that was acquired twice and now charges fees that would eat too much of the trust income. The trust holds $40,000 and costs $3,000 a year to administer. Or some similar problem makes the structure undesirable now.

Families in this position usually assume nothing can be done. That is often wrong, though the tools available in Idaho are narrower than in some neighboring states. 

Start with the document itself

Before looking at any statute, read the trust. Many were drafted with an escape hatch already installed.

Idaho Code § 15-7-501 recognizes the role of a trust protector, a disinterested third party whose powers are spelled out in the instrument. Those powers can be substantial: amending the trust in response to changes in the Internal Revenue Code or state law, adjusting beneficial interests, modifying a power of appointment, removing and replacing trustees, or changing the trust's governing jurisdiction.

The limit is real. A protector cannot create a beneficial interest for someone the trust never contemplated. And a protector who was never named in the document does not exist. But if your trust has one, that is usually the simplest and cheapest path to a solution.

What the trustee can do without a court

Idaho Code § 15-7-402 permits a trustee to divide one trust into separate trusts, or consolidate several into one, without judicial approval when everyone entitled to notice consents in writing. Splitting a pot trust into separate shares can let one beneficiary's share be handled differently from another's.

The statute also gives a trustee authority to wind up a trust that has grown too small to justify its own administration. A spendthrift clause does not block that authority unless the instrument specifically says so.

Parties can also resolve many administrative questions by written agreement among themselves, though anything touching beneficial interests generally still needs court approval.

Going to court

Idaho's district courts have jurisdiction over the internal affairs of trusts and can modify or terminate one where the purpose has been fulfilled, has become impossible, impractical, or illegal, or where continuing it is uneconomic. Modification is also available where the trustee and all beneficiaries agree and the change is not inconsistent with a material purpose of the trust.

It takes a petition, a notice period, and a hearing. Not fast, not free, but frequently worth it for a trust holding real money under the wrong terms.

A gap Idaho hasn’t filled

Most states have adopted a decanting statute, which lets a trustee pour assets from an old trust into a new one with better terms, following a clear statutory procedure. Idaho has not.

Decanting here rests on the trustee's discretionary distribution powers under general trust principles instead of a statute. Where the trustee has genuinely broad discretion over principal, it may be possible. Where discretion is limited, it is not. And without statutory safe harbors, the trustee carries real exposure if a beneficiary later objects. But Idaho does allow modifications of Trusts if all affected parties (and this is very broadly construed so it can include people like grandchildren and great grandchildren) are in agreement and sign off on the change. This is done through Idaho’s Trust and Estate Dispute Resolution Act statute. But fair warning – this is not a DIY project. There are very technical and stringent requirements to make this option work, including filings with a court. You will need an experienced attorney to assist you if this is the path forward.

The practical advice

• Do not let a trustee “just stop following” terms everyone agrees are outdated. Informal workarounds create liability and do not bind anyone.

• Review any irrevocable trust drafted before 2020 that holds retirement assets, and any trust built around estate tax thresholds that no longer apply. • If you are drafting one now, talk to your attorney about whether a trust protector and a change-of-situs provision are right for you.

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning probating estates or creating estate planning documents.

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Robert J. Green is an Elder Law, Trust, and Estate Planning Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, or powers of attorney, contact Kootenai Law at 208-765-6555, [email protected], or visit www.KootenaiLaw.com.

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances