1.2.2 Irrevocable Trust
At the grantor’s death, the trust becomes irrevocable. At death, the trust may continue with a direction that distributions are made to named beneficiaries (or to a class of beneficiaries) or terminate.
Under the Common Law of Maryland (and elsewhere), a trust that is silent as to revocability is presumed irrevocable. Liberty Trust Co. v. Weber, 200 Md. 491 (1952).
The Uniform Trust Code (2003) adopts a default rule that reverses the Common Law and assumes revocability. It also provides that a revocable trust may be revoked or amended by the settlor. If the trust is created or funded by more than one settlor, “each settlor may revoke or amend the trust with regard to the portion of the trust property attributable to the settlor’s contribution.” UTC § 602 (a) and (b). As noted, the UTC adopts the minority approach when it makes trusts presumptively revocable. Currently, California, Iowa, Montana, Oklahoma and Texas presume revocability. See UTC Comment at § 602.
An irrevocable trust agreement may be set aside on grounds that contracts may be set aside: fraud, duress, undue influence, breach of a confidential relationship, or mistake. There is no presumption of mistake. Mistake must be shown by affirmative evidence that the grantor believed that he or she had the power to revoke. The mere fact that the grantor believed that he or she could revoke the trust is not a sufficient ground for reforming the instrument. Liberty Trust Company v. Weber, 200 Md. 491 (1952). See also footnote 11 in Shriners Hospitals v. Md. Nat’l Bk., 270 Md. 564 (1973):
“Some cases may warrant the cancellation of inter vivos trusts on the ground of mistake or misunderstanding, see Atkinson v. Atkinson, 157 Md. 648, 147 A. 662 (129) (settlor, aged and infirm, misunderstood meaning of trust of deed); Raffel v. Safe Deposit & Trust Co., 100 Md. 141, 59 A. 702 (1905) (inexperienced settlor under mistaken belief regarding her power to revoke trust deed). Compare other cases where such relief was denied, e.g., Lambdin v. Datzebecker, 169 Md. 240, 181 A. 353 (1935); Peter v. Peter, 136 Md. 157, 110 A. 211 (1920) (settlor was an attorney); Kensett v. Safe Deposit & Trust Co., 116 Md. 526, 82 A. 981 (1911); Dayton v. Stewart, 99 Md. 643, 59 A. 281 (1904); Brown v. Mercantile Trust & Deposit Co., 87 Md. 377, 40 A. 256 (1898).”
The doctrine that a trust instrument may be reformed by a court to correct a mistake “is ordinarily applicable only in cases … involving inter vivos trust instruments.” Testamentary trusts are treated as wills and “the general prohibition against the reformation of a will would prevail” in cases seeking reformation of a testamentary trust. Shriners Hospitals v. Md. Nat’l Bk., 270 Md. 564, 581-2 (1973). See, however, Probasco v. Clark, 58 Md. App. 683, 687 (1984) (involving a testamentary trust): “Courts do, however, have the inherent power to modify a trust so long as that authority is exercised with caution and not employed merely as a tool or devise to enable beneficiaries to receive [an increased amount.]” Also see In Re Trust of Lane, 323 Md. 188 (1991), where the Court permitted a modification of a trust where the remaindermen agreed to the modification. There was no spendthrift clause in Lane. A spendthrift clause would have precluded change.
Apparently, if a trust that is “irrevocable” by its terms is later reformed by a court to become revocable, the federal tax law may permit an amended gift tax return to reflect that there was no completed gift in the first instance. In Berger v. U.S., 487 F. Supp. 49 (W.D. Pa., 1980), C. William Berger anticipated a high level job with the Nixon administration at the FAA. He mistakenly believed that he had to place all of his assets into an irrevocable trust in order to comply with the Nixon administration’s policy on conflict of interest. Apparently a revocable trust would have been sufficient. After his prospects of government service evaporated, he successfully argued in the state court that the “irrevocable” aspect of the trust was a mistake and the trust was reformed.