Given how popular trusts are, there is a very good chance that you will create a trust and/or be the beneficiary of a trust at some point in your lifetime. If the trust is an irrevocable trust you may wonder who has the authority to terminate the trust. Given the various factors that impact the ability to terminate any trust, you should always consult with your estate planning attorney about a specific trust. In general, however, it may help to learn when and how you can typically terminate an irrevocable trust. The Grand Forks trust planning attorneys at German Law explain when and how an irrevocable trust can be terminated.
Trust Basics
One reason trusts are so popular is that trusts are extremely flexible, meaning a trust can help achieve a wide range of estate planning goals. Although trusts can be highly specialized to accomplish very specific goals, all trusts are fundamentally the same. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Grantor”, “Trustor” or “Settlor.” The Grantor transfers property to a Trustee, appointed by the Grantor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Grantor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Grantor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Grantor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
Terminating an Irrevocable Trust
There are myriad reasons why you might want to terminate an irrevocable trust. Whether or not you are able to do so will depend on what your relationship is with the trust and what your reason is for wishing to terminate the trust. State law typically governs the termination of an irrevocable trust. In North Dakota, the law allows for the termination of an irrevocable trust under the following conditions:
59-12-10. (410) Modification or termination of trust – Proceedings for approval or disapproval.
- In addition to the methods of termination prescribed by sections 59-12-11, 59-12-12, 59-12-13, and 59-12-14, a trust terminates to the extent the trust is revoked or expires pursuant to its terms, no purpose of the trust remains to be achieved, or the purposes of the trust have become unlawful or impossible to achieve.
- A proceeding to approve or disapprove a proposed modification or termination under sections 59-12-11, 59-12-12, 59-12-13, 59-12-14, 59-12-15, and 59-12-16, or trust combination or division under section 59-12-17, may be commenced by a trustee or beneficiary. The settlor of a charitable trust may maintain a proceeding to modify the trust under section 59-12-13.
59-12-11. (411) Modification or termination of noncharitable irrevocable trust by consent.
- A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust. An irrevocable trust that is modified under this subsection continues to be irrevocable.
- Upon termination of a trust under subsection 1, the trustee shall distribute the trust property as agreed by the beneficiaries.
- If not all of the beneficiaries consent to a proposed modification or termination of the trust under subsection 1, the modification or termination may be approved by the court if the court is satisfied that if all of the beneficiaries had consented, the trust could have been modified or terminated under this section and the interests of a beneficiary who does not consent will be adequately protected.
59-12-12. (412) Modification or termination because of unanticipated circumstances or inability to administer trust effectively.
- Upon petition by the trustee, the attorney general, or an interested party other than the settlor, the court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust. To the extent practicable, the modification must be made in accordance with the settlor’s probable intention.
- The court may modify the administrative terms of a trust if continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.
- Upon termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust.
Contact the Grand Forks Trust Attorneys
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about terminating an irrevocable trust, contact a Grand Forks trust attorney at German Law by calling 701-738-0060 to schedule an appointment.
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