When It's Broke ? Fix It: Reforming Irrevocable Trusts to Change Tax Consequences

Abstract:     
Several old sayings have a great deal of meaning to lawyers and taxpayers. One is, "nobody is perfect," or said another way, everyone makes mistakes. The other saying, "If it ain't broke, don't fix it," as a corollary: if it is broke, fix it. In the estate planning arena, these two sayings may be combined to yield an important axiom: mistakes happen and trying to correct them is important.

The path to fixing estate planning mistakes requires analysis to determine what errors state courts can remedy and when the Service will accept the modification for tax purposes. This article will examine when state courts may reform irrevocable trusts and when the Service will accept the reformation, or when federal courts have forced acceptance. Moreover, it will propose reformation guidelines that Congress or the federal courts should adopt to provide relief for marital deduction problems similar to the relief granted charitable gifts.

Accepted Paper Series