Trust Termination Lawyers
What is the difference between terminating and modifying a trust?
A trust is created by a settlor for the purpose of transferring property to be held by a trustee. The trustee will then manage the trust assets until they are distributed to beneficiaries. Terminating a trust is when the trust 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” or trust termination.
On the other hand, modifying a trust is when only a portion of the trust is altered in order to reflect changed conditions or a change in the intent of the settlor. Trusts are generally modified during creation or shortly after its creation. Termination may occur during later phases and for many different reasons.
A trust can be designated by the settlor as “irrevocable”, which means it may not be terminated unless certain procedures are followed. Revocable trusts may be revoked at any time once the settlor expresses their intent to terminate.
Who may terminate a trust?
In general, only the settlor of a trust is allowed to terminate it. Beneficiaries are sometimes allowed to terminate the trust only 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:
- Distribution of trust assets to beneficiaries: This is usually specified in the trust document. It may occur on a specific date or on the happening of an event, such as the death of the settlor or upon a beneficiary’s graduation from college.
- At the discretion of the trustee: Trustees may only terminate the trust if it is written into the trust document
- According to trust termination provisions: The trust document may provide further instructions for termination besides those related to distribution
- Issues with creation: A trust may be terminated by the court if it was created under conditions of fraud, duress, undue influence, or coercion
- Merger: If the trustee and the beneficiary become the same person, the trust will terminate and the trustee will receive all the trust assets. There must be no other beneficiaries involved
- Illegality: A court may terminate a trust whose purpose has become illegal or impractical to administer
- For irrevocable trusts: Irrevocable trusts may only be terminated if all beneficiaries consent to it, and the termination would not be contrary to the general trust purpose. This action may require filing a petition with the court
- Period of time in state law expires: Some laws such as the Rule Against Perpetuities create deadlines in which the trust purpose must be executed
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 attorney is especially important if there are disputes with other trustees or beneficiaries.
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Last Modified: 01-10-2013 03:21 PM PST