In short, a trust is a device that allows for the transfership of property for the benefit of another person. In legal terms, the word trust refers to a type of property arrangement in which the owner of the property, known as the “grantor,” puts some of their property in trust for the benefit of a designated person, known as a “beneficiary.” The property held in the trust is managed by a third party, known as a “trustee.” 

Trust laws vary from state to state, but generally, they are an efficient way for people to transfer their assets in a way that they can control and manage. An example of this would be placing certain conditions on the trust property that must be fulfilled before the property is transferred, such as the beneficiary reaching a certain age.

There are several different types of legally recognized trusts. However, the most common type is an express trust. This type of trust is intentionally created in order to purposefully distribute the property or funds to a trustee, who will then hold the property in trust for the recipient. 

Express trusts can be further categorized into lifetime trusts (a trust which is set up during the lifetime of the grantor) and testamentary trusts (a trust that is enacted upon the death of the grantor).

In order for a trust to be valid, there are some general requirements that must be met. Some examples of these requirements include:

  • There must be a settlor (creator), and they must deliver legal title of the property to a trustee; 
  • There must be an intent to create a trust;
  • The trust must be created for a lawful purpose; and 
  • The document embodying the trust must be validly executed. 

How is a Trust Terminated, and Who May Terminate a Trust?

Trusts may be terminated, and commonly are terminated when the property is exhausted. An example of this would be if the property was in stocks or cash, and all of it (including interest) is paid out to the beneficiary. A trust may also end if the property was a home that was destroyed, or if the trust itself naturally ended. 

Further, when the grantor specifies an end date or when a condition is met, the trust will end on that date or on the date in which the condition is met. For example, a trust created to pay for college expenses will end upon that beneficiary graduating from college. Some examples of the circumstances in which a trust may be terminated include but or not limited to:

  • The settlor (creator) was not of sound mind at the time of the trust’s creation, thereby rendering the trust invalid;
  • The settlor created the trust under duress, undue influence (a level of influence brought to bear on an individual by another person that would cause the individual to act other than by their own free will or choice), mistake, or fraud;
  • The trust was made for an illegal purpose, such as for tax fraud;
  • The trustee is found to be in violation of their duties; or
  • Disputes between beneficiaries, when there are multiple beneficiaries. 

Generally, the settlor of a trust is the only party who may terminate the trust. However, other parties that can often terminate a trust include:

  • Beneficiaries who are contesting or disputing the trust, although this usually requires an agreement to do so on the part of all beneficiaries; 
  • Parties that may be negatively affected by the trust; or
  • By operation of law, such as the trust involving illegal conduct or is too small to operate properly as a trust.

As can be seen, some intention must be expressed regarding the trust’s termination. Verbal instructions for terminating a trust may be allowed, but it is generally best if the instructions are in writing. 

Unless the trust specifies as much, trustees are typically never allowed to terminate a trust. In some situations, the court may intervene and terminate the trust. However, this is typically reserved for cases in which there was an illegality, impracticality, or the trust has expired.

What Else Should I Know About a Terminating Trust?

Trusts may either be revocable or irrevocable. If a trust is revocable, this means that the person establishing the trust reserves the right to cancel the trust and recover the property. If a trust is irrevocable this means that the terms of the trust cannot be modified or terminated. 

However, it may be possible to modify an irrevocable trust in some situations. For instance, an irrevocable trust may be modified or revoked with the consent of the settlor and all involved beneficiaries. 

The termination of a trust results in the total extinguishing of trust assets. However, the modification of a trust only changes a portion of the trust to reflect the new intent of the settlor, or to reflect any changed conditions.

Some of the more common disputes regarding revocable trusts include:

  • Timing of the revocation, such as a beneficiary depending on the trust property for various reasons but the timing of the revocation causing legal conflicts;
  • Conflicts regarding the trust property itself, such as confusion regarding the property if it is hard to identify or locate based on the will’s instructions; or
  • Validity of the revocation, such as the trust not meeting state requirements for being a revocable trust. 

As previously discussed, trusts may be terminated for various reasons but are generally terminated once the trust has been exhausted, or specific conditions have been met. Other circumstances include:

  • 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 the trust, and they choose to do so; or
  • State law created a deadline in which the trust must have been executed and has expired.

Should I Hire an Attorney If I Want to Terminate My Trust?

As can be seen, there are numerous reasons that a trust may be terminated. Typically, the first step in terminating a trust is to contact the attorney responsible for helping to create the trust. As such, it would be beneficial to consult with a skilled and knowledgeable trust lawyer

An experienced estate attorney can help you determine your best legal course of action given your particular situation. Further, they will be able to advise you on how your state laws may affect your claim. Lastly, they will be able to represent you in court, if necessary.