A trust is a type of property arrangement in which the owner of property, the “grantor,” will put some of his or her property in trust to a designated person, “the trustee,” who will take care of the property for the benefit of someone else, namely the “beneficiary.” Trusts do come to an end, and the simplest way in which one ends, is when the property is exhausted. For instance, if the property was in stocks or cash and all of it is paid to the beneficiary, including interest, then it would be exhausted. A trust can also end if the property was a home that was destroyed, or if the trust itself naturally came to an end. When the grantor specifies an end date to the trust, or when a condition is met, the trust will end on that specified date or the moment the condition is met. For example, if the grantor says the child will get the benefit of cash until she graduates from college, her graduation would be a met condition. If the grantor says the child will get the benefit of cash until she turns 21, then her 21st birthday would be a specified end date to the trust. Trusts may also be terminated in situations where any of the following apply:
  • The settlor was not of sound mind at the time of the trust’s creation;
  • The settlor created the trust under duress, undue influence, mistake, or fraud;
  • The basis of the trust was illegal;
  • The trustee is found to be in violation of his duties; and/or
  • Disputes between beneficiaries.

What is the Difference Between Terminating and Modifying a Trust?

Trusts are either “revocable” or “irrevocable” in nature. Though the definition of an irrevocable trust means that it is “unable to revoke,” it may be possible to modify the trust in some situations. Usually, an irrevocable trust may be modified or revoked with a court order, and with the consent of the settlor and beneficiaries. Terminating a trust results in the total extinguishment of trust assets, whereas modification of a trust changes a portion of the trust to reflect the new intent of the settlor or to reflect changed conditions. Read More About:

Who May Terminate a Trust?

Usually, the settlor of a trust is the only party who can terminate the trust. However, beneficiaries may be able to terminate the trust if they are not acting against the purpose of the trust and if they reach a majority consensus. Unless the trust specifies as such, trustees are generally never allowed to terminate a trust. In some situations, the court may intervene and terminate the trust. The court’s involvement is typically in cases where there was an illegality, impracticality, or the trust has expired.

Under What Circumstances Does Trust Termination Usually Occur?

There are several circumstances in which a trust will terminate. As mentioned, if the assets were already distributed at a certain date, or once a condition was met. Illegalities, or issues with creation may also allow for the termination of a trust. If the trust was irrevocable, then all parties must have consented, and the termination would not be contrary to the purpose of the trust. Other circumstances in which a trust may terminate include:
  • The trust provides instruction for termination, alongside those related to distribution;
  • If the trustee and beneficiary become the same person, and there are no other beneficiaries involved;
  • The trust specifies that the trustee is allowed to terminate, and he or she chooses to terminate; and/or
  • State law, such as the rule against perpetuities, that created a deadline in which the trust must have been executed, expired.
In some states, “small trust” statutes will terminate a trust if its monetary value is too small, or if the trust has paid out more money than it has brought in.

Do I Need a Lawyer to Terminate a Trust?

The first step to terminate a trust is typically to contact the attorney who helped create the trust. Since they helped form and create it, they are the most qualified to know how to properly terminate the trust without causing any future headaches. If you cannot contact the attorney, then make sure you have all of the important documents relating to the trust. Once you have compiled them, then it will be in your best interest to contact an estate lawyer near you that can look over the documents and let you know what steps you need to take.