A comprehensive estate plan should accomplish much more than just deciding who will receive your estate assets when you die. Along with creating a blueprint for the distribution of your assets, your estate plan can also do things such as plan for incapacity, help set you up for retirement, and even help with long-term care planning, among many other things. In order to accomplish all of these goals you will likely need to include additional estate planning tools and strategies in your estate plan. One common addition to a well thought out estate plan is a revocable trust. If you are considering the addition of a revocable trust into your estate plan you may have a number of questions, such as “When do revocable trusts terminate?”
At its most basic, a trust is a legal relationship, or agreement, whereby property is held by one party for the benefit of another. A trust is created by a “Settlor”, also referred to a “Maker,” “Grantor,” or “Trustor,” who transfers property to a Trustee. The trustee holds that property for the beneficiaries named in the trust.
Testamentary vs. Living Trusts
Although there are a seemingly endless number of specialized trusts you may choose to use, all trusts are first divided into two basic categories – testamentary and living trusts. A testamentary trust is a trust that does not become active until the death of the Settlor, or creator, of the trust. A living trust, as the name infers, is a trust that becomes active once all the formalities of creation are in place.
Revocable vs. Irrevocable Trusts
Living trusts are then further divided into revocable and irrevocable living trusts. A revocable trust is one that can be modified or changed at any time and for any reason by the Settlor whereas an irrevocable trust cannot be modified or revoked by the Settlor for any reason once the trust takes effect. Because a testamentary trust is trigger by the death of the Settlor, it can be modified or revoked up until the Settlor’s death, making all testamentary trusts revocable trusts.
Terminating Revocable Trusts
Because the Settlor of a revocable trust retains the right to modify, change, or revoke the trust, a revocable trust may always be terminated by the Settlor at any time and for any reason. In addition, a trust may also be terminated, as a general rule, under any of the following conditions:
- Trust terms – the terms of the trust may dictate under what conditions the trust may terminate. The trust terms may also set a specific date upon which the trust terminates.
- Depletion of assets – if the trust assets are depleted, the trust purpose become impossible to fulfill. Therefore, the trust may be terminated at that point.
- Trust purpose – if the purpose of the trust is found to be illegal, unconscionable, or impossible to fulfill for any reason, the trust may terminate.
- Consent – under certain circumstances, the Settlor, the beneficiaries and/or the Trustee of the trust may be able to terminate a revocable trust. Whether or not this is possible, and exactly which combination of parties is required, depends on several factors.
- Unanticipated circumstances – if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust it may be terminated
- Court order – the beneficiaries and/or Trustee of a revocable trust may petition a court to terminate the trust. If the court finds good reason to do so, the trust may terminate with a court order.
- Costs of administration – a revocable trust may be terminated if the value of an irrevocable living trust is less than $100,000 and if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.
Revocable trusts are a common addition to an estate plan because of the numerous and varied estate planning goals they can help you accomplish; however, there are limitations to what a revocable trust can help you do. For example, if asset protection is your goal a revocable trust will not help. For that, you need to create an irrevocable living trust. The best way to ensure that you create the right trust for your purposes is to work closely with an experienced North Dakota estate planning attorney.
If you have additional questions about revocable trusts in the State of North Dakota contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.