A trust can be created for various reasons, such as for transferring large amounts of money to a beneficiary, donating money to charities, or other reasons. Sometimes, a trust may be terminated if certain needs arise. Parties that can often terminate a trust include:

  • The trust creator
  • Beneficiaries who are contesting or disputing the trust (usually requires agreement to do so between all beneficiaries)
  • Parties that may be negatively affected by trust
  • By operation of law (for instance, if the trust involves illegal conduct or is too small to operate properly as a trust)

The main requirement is that some intention be expressed regarding the trust’s termination. In some cases, verbal instructions for terminating a trust can be allowed, but it’s usually best if the termination instructions are given in writing. That way, the parties have records that can be referenced in court if needed. Also, trust termination may depend on whether the trust is revocable or not (i.e., the trust creator has reserved a right to cancel the trust).

When Can a Trust Be Terminated?

For revocable trusts, the main guideline is that terminating a trust should occur according to the instructions set forth in the trust guidelines. Since trusts vary each time, this will all depend on the needs of the trust creator. If the trust creator didn’t really state any guidelines, they are usually free to terminate the trust at any time and for any reason (so long as it isn’t illegal to do so). Also, they should indicate in the document whether or not the trust is revocable.

As mentioned above, termination being sought by the beneficiaries may depend on state law. Some states require a unanimous agreement amongst all beneficiaries that the trust should be terminated. Other states only require a majority vote between the beneficiaries.

Lastly, it can also sometimes happen that the court decides to intervene and terminate a trust. This may occur for instance if the trust involves some sort of illegal subject matter (such as the transfer of drugs or other illegal substances). Also, some states have "small trust laws", which require a trust to be terminated if the trust funds are too small (below a certain amount)

Do I Need to Hire a Lawyer for Help Terminating a Trust?

Terminating a trust may involve various different laws and financial planning rules. It’s in your best interests to hire a trust lawyer if you need help with trust termination or other matters. Your attorney near you can help when it comes to the procedures and guidelines for terminating a trust. Also, in the event of a lawsuit, your lawyer can represent you during court appearances and meetings.