Q: If a person already has a trust, can he create a second one? Will the second trust revoke the first one?
A: The simple answer to your question is no, creating a second trust does not revoke a prior trust. This is another difference between wills and trusts. Most wills contain a provision that states that the new will revokes all prior wills. Trusts don’t usually do that.
One exception to this would be if the second trust is a restatement and complete amendment of the first trust. However, a restatement isn’t a new trust, but rather an amendment to the first one. It’s a complete amendment but still an amendment.
I suppose that a subsequent trust could also contain a provision that revokes the first trust. Since the provision would technically qualify as a written revocation of the first trust, it would probably work to revoke the first one. However, I think that would be a really bad way to revoke a trust.
The real question should be “why do you want to two trusts?” If you want to distribute something outside of the normal distribution paragraph, you can do so with a separate specific distribution provision.
For example, if you want to distribute all of your property among your three children but you also want to make sure that the eldest daughter gets the family lake house in addition to her share, you can do so with some simple language.
There are situations when having two separate and distinctive trusts make sense. For example, not too long ago we would set up irrevocable trusts to hold life insurance policies. An Irrevocable Life Insurance Trust (ILIT) would own life insurance policies so that the proceeds would be kept out of a decedent’s taxable estate.
However, the increase in the unified credit has substantially increased the amount of money a person can leave before their estate is subject to federal estate tax. As a result, we don’t see as many ILITs as we used to.
Now, I’m not saying that there is never a need for more than one trust, but having multiple trusts certainly is outside the norm. I think I would start with why you think you need multiple trusts and then determine if there is a way to accomplish that goal using one trust and some creative language.
Using one trust should be more cost effective and less complicated.
Christopher W. Yugo is an attorney in Crown Point. Chris’ Estate Planning Article appears online every Sunday at www.nwi.com. Address questions to Chris in care of The Times, 601 W. 45th Ave., Munster, IN 46321 or to Chrisyugolaw@gmail.com. Chris’ information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant, or estate-planning specialist.