Trusts were once used almost exclusively by wealthy families as a tool by which the family wealth was passed down through the generations, often without paying substantial taxes on the transfer of wealth. Most of those tax loopholes have long since been removed; however, trusts are more popular than ever. In fact, trusts have evolved to the point where it is common to find at least one trust in the average estate plan. If you are considering the addition of a trust in your plan, or you are the beneficiary of a trust established by someone else, you may find yourself wondering how a trust terminates. The Grand Forks trust attorneys at German Law | Wealth explain how a trust can be terminated and who has the authority to do so.
Trust Fundamentals
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 “Settlor”, “Trustor” or “Grantor.” The Trustor transfers property to a Trustee, appointed by the Trustor. 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 Trustor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Trustor’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 Trustor’s Will, and a Will can always be revoked up to the time of the Trustor’s death, a testamentary trust is also revocable up to that point.
Terminating a Trust
Several factors will determine how a trust is terminated and who has the authority to terminate the trust. The type of trust you wish to terminate, for example, will determine who has the authority to easily terminate the trust. If the trust is a revocable living trust or a testamentary trust, for example, the Trustor may terminate the trust at any time and for any reason. If, however, the trust is an irrevocable living trust the Trustor does not have the authority to terminate the trust after it is established.
The terms of a trust may also dictate when a trust terminates. A Trustor may include a specific date on which the trust is to terminate or may include a triggering event, after which the trust terminates. For instance, the Trustor might include a term that automatically terminates the trust after the youngest beneficiary reaches the age of majority or following the death of a beneficiary. Certain types of charitable trusts, known as charitable lead and charitable remainder trusts, have a time frame built into the trust, after which the trust terminates, and the remaining assets are distributed to the remainder beneficiary. A Trustor may also give the Trustee the discretion to terminate the trust when the trust purpose has been fulfilled or when the trust assets diminish to a point at which the trust is no longer able to fulfill the trust purpose. If the trust assets are completely depleted, the trust will terminate as well.
If the Trustee or beneficiaries of a trust wish to terminate the trust, yet lack the authority to do so, they can always petition a court for a judicial termination of the trust. If the court is convinced that terminating the trust is what the beneficiaries want and that doing so will not frustrate or hinder the trust’s purpose, the court may order termination.
Contact a Grand Forks Trust Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about terminating a trust, contact a Grand Forks trust attorney at German Law | Wealth by calling 701-738-0060 to schedule an appointment.
- What Might Be Missing from Your Estate Plan? - March 7, 2023
- Estate Planning in 10 Steps - February 9, 2023
- What Estate of Marion Levine Means for Life Insurance - February 7, 2023
