Modifying and Terminating Special Needs Trusts
Stuart D. Zimring
May 4, 2009
It appears to be axiomatic that, at the very least, first-party or self-settled Special Needs Trusts ("SNTs") are drafted as "irrevocable" trusts.1 Presumably this is to satisfy the requirements of 42 U.S.C. §1396p(d)(4)(A) that requires such self-settled trusts to be "...established for the benefit of such individual...", the argument being that if the trust were revocable, the settlor could revoke the trust or utilize its assets for the benefit of someone other than the beneficiary.
Unfortunately, an uncritical analysis of this strategy leads many drafters (and even more unfortunately, some interpreters), to the conclusion that because the trust is irrevocable, it is un-modifiable and therefore the beneficiary and the trustee are locked in to the trust's immutable provisions, regardless of whether those provisions are appropriate to the then-existing circumstances.
Fortunately, this is not true. First, as will be seen below, proper drafting can obviate the draconian consequences of "irrevocability" equaling "unmodifiable" and, even better, current trust law in most jurisdictions establishes statutory bases upon which interested parties can obtain judicial relief.
