How to Change My Inheritance So the Casino Doesn’t Get It?

Dear Mr. Miller:

I want to change my Dad’s Trust.  We have debts up the wazoo.  My husband couldn’t control himself at the gambling table and the overall bill is now $300,000 or so.  My Dad’s Trust leaves one half to me and the other half to my brother.  My Dad’s estate is about $2 million split between a house and the securities account.  Seems simple, just ask him to do it.  But here’s the problem:  he is totally demented.   He has no idea where he is or what he is doing.  The Trust is titled “Irrevocable Trust.”  Does that mean what I think it means?

Soon to be Cleaned Out by the Casino Daughter

Spouse with Gambling Addiction–Keep or Dump
Types of Trusts
Levels of Irrevocability
Methods to Change Irrevocable Trusts
Bankruptcy
Trust Decanting
Call Us

Dear Casino Daughter:

There may be a ray of sunshine glimmering through, so stick with me.

Spouse with Gambling Addiction–Keep or Dump:  First, I would say you need to have a very stern conversation with your husband—-and then with yourself.  Unless the spending was due to medical necessity or some other type of unavoidable emergency, spending that much beyond your means is a huge problem and red flag for the future.  Gambling does not fall into the category of emergency necessity.  The big question is, should you stay with him or cut your losses now?

Types of Trusts:  With that said, we can discuss your Dad and his estate plan.  Trusts come in all sorts of shapes and sizes.  For your purposes there is the revocable type (it can be changed, i.e. amended, and canceled, i.e. revoked).   Revocable is the type that most people have.   The other type is irrevocable, i.e. can’t be changed or canceled.

Levels of Irrevocability:  Amazingly there are different “levels” of “can’t be changed” so the document, itself, would have to be examined to see what changes may be allowed and by whom.  Further, I have seen Trusts labeled “irrevocable” when, in fact, they are completely revocable.  So, again, it is critical to have that document reviewed by an experienced attorney.

Methods to Change Irrevocable Trusts:  If the Trust is actually revocable, then your Dad could change it if he were competent.  If a Trust is irrevocable or the settlor (your Dad in this situation) is incompetent, then a person authorized in the document may be able to make changes.  This person may be one holding the power of attorney (again, it depends on the language in the power of attorney document and in the trust)  or by one granted in the trust something called a power of appointment.  In some circumstances, consent of your Dad (via one holding a power of attorney), your brother, and you might be enough to make the necessary change.  And as a final option, a request to the court may well be necessary on the grounds of changed circumstances.

Bankruptcy:  Another approach would be for you (and your husband) to declare bankruptcy.  If this occurred substantially prior to your Dad’s passing, then when he did pass, these debts would presumably have been discharged in bankruptcy.  But if he died shortly after the bankruptcy, then your inheritance might be pulled back into the bankruptcy to pay off your creditors.  Please see a bankruptcy attorney before taking any action on this basis as I haven’t practiced bankruptcy law in a long, long time so I am not up to date on procedures, tactics, or strategy in this field.

Trust Decanting:  You haven’t indicated what change you would like to make in your Dad’s Trust but I’m assuming it is either to leave it all to your brother who would then take care of you to some extent for life or to leave you with your inheritance but in the form of a “locked up and protected” trust rather than outright.  The locked up and protected trust is often referred to as a “Spendthrift Trust.”  To wind up with a spendthrift trust in this situation, a procedure called decanting the old Trust to a new one could be used.  Often times this can be done by the Trustee, which I am guessing may well be you, with or without court approval.

Call Us:  Give us a call at 760-436-8832 so we can review the documents and discuss your options in detail.