Trust Termination Lawyers

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How Is a Trust Terminated?

A trust is a legal instrument created by a “settlor” for the purpose of transferring property to be held by a “trustee,” for the benefit of a third-party “beneficiary.” The trustee manages the trust assets until they are distributed to the beneficiary or beneficiaries.

A trust is “terminated” when it is entirely extinguished, leaving the property to be returned to the settlor or distributed to other persons. This may also be referred to as “revocation.” The manner in which a trust is terminated depends on whether the trust is a “revocable trust” or an “irrevocable trust.”

Trusts may also be terminated for a variety of legal reasons:

What Is the Difference between Terminating and Modifying a Trust?

Trusts may be modified through amendments to make adjustments such as changing beneficiaries, altering the manner in which assets will be distributed, or changing the trustee. While trust termination results in the total extinguishment of trust assets, trust modification only alters a portion of the trust in order to reflect changed conditions or a change in the intent of the settlor. Trusts are generally modified during creation or shortly after creation, while termination may occur during later phases and for many different reasons. 

Who May Terminate a Trust?

In general, only the settlor of a trust is allowed to terminate it. Beneficiaries may be allowed to terminate the trust if they reach a majority consensus and are not acting contrary to the trust purpose. Trustees may never terminate a trust unless the trust document specifically contains provisions allowing them to do so.

Finally, in some instances a court may intervene and terminate the trust. Court-ordered terminations are common in cases where the trust purpose is illegal, impractical, or has expired.

Under What Circumstances Does Trust Termination Usually Occur?

Trust termination can occur under the following circumstances:

Lastly, some states have “small trust” statutes under which trusts may be terminated. For example, Florida has a statute that allow a trust to be terminated if it is too small (monetarily speaking) such that it has become impractical to continue trust administration. This may occur if trust assets have decreased in value or if the trust has paid out more funds than it has brought in.

Do I Need a Lawyer to Terminate a Trust?

Terminating a trust is an important decision that could affect several parties. If you are considering terminating your trust, or if you are involved in a trust termination, you may wish to consult with a lawyer for advice. A trusts attorney understands the details of trust termination laws and can help represent you in court if necessary. Working with an estate attorney is especially important if there are disputes with other trustees or beneficiaries.

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Last Modified: 09-12-2014 03:39 PM PDT

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