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By a defective trust, I mean a trust that meets the definition of a trust for estate tax purposes but not income tax purposes.

Consider an irrevocable defective trust that is setup without going to court and without getting a separate EIN number for the trust. Can such a trust be amended? Would it require a motion to be filed with a court?

The trust was setup in New Jersey.

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It depends on several factors you haven't laid out. Who the beneficiary is, who is the Trustmaker and who is the trustee. What type of assets are in the trust? And is your concern tax on DNI? .

Do you mean an IDIT or BDIT or the Grantor Type trust (sec 671-8)

Its a fascinating subject that I know a fair amount about (with a PLR along the way! Woo hoo! ) but you haven't given enough variables to solve the equation.

  • It is an intentionally defective grantor trust or an IDGT. It was setup by the parents for their one child. The trust uses the parent's social security number for reporting the income to the IRS. – Bob Nov 7 at 2:06
  • We want to change the rules about replacing a trustee. Currently, there is only one trustee on the trust but after the death of both parents a second trustee is added. The second trustee has moved out of state and is very hard to get a hold off. She often does not return phone calls. – Bob Nov 7 at 2:08
  • In my opinion you can have it judicially modified to be a BDIT if you are interested in shifting the taxes to the beneficiary and as deemed owner -- making the trust a disregarded entity.. As far as the Trustee it doesn't make a ton of sense than there wasn't a clause if the 2nd trustee declines... Who wrote it? – Tater FTL Nov 7 at 2:25
  • There is a clause that enables the second trustee to be replaced but only by an institutional trustee. We want the trust modified so that the second trustee can be replaced by a friend. The trust was written by an attorney. – Bob Nov 7 at 11:09
  • @Bob Is the current trustee reluctant to be replaced? That could make it quite a lot harder. – Martin Bonner supports Monica Nov 8 at 15:47
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You would need to have a judge sign off on changing the clause regarding the successor trustee. It's really at the judges Discretion . . .

The judge would likely confirm that there would be no adverse changes to the beneficiary, and that the change is being made for convenience, not to try to change the class of beneficiary or add additional beneficiaries or give power to a non institutional fiduciary who may have ulterior motives.

It could also be done judicially through decanting into a new similar trust.

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In an intentionally defective trust, it is generally possible for the grantor to unilaterally disclaim or waive the rights of the grantor that make it a grantor trust for income tax purposes without court action and without truly amending the trust, typically by providing a signed and sometimes also notarized document to that effect to the trustee.

There are mechanisms for amending trusts either contained in their own language, or to reform them in a court process for truly having unintended features. But, these are not good options for an intentionally defective trust.

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