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Sunday, June 30, 2019

Terminating a Living Trust

Trusts terminate due to a variety of circumstances. Usually, it is as simple as having all of the trust property distributed to beneficiaries and then the trust is effectively terminated. This is what happens with the majority of living trusts which are frequently used as a way to avoid probate while still distributing assets to designated beneficiaries. Once the trust assets have been distributed according to the terms of the trust, the trust closes. For whatever reason, however, you may want to terminate a living trust earlier than originally planned. For this to happen, it depends on what type of living trust was created in the first place.

How Do You Terminate a Living Trust?

A living trust can be revocable or irrevocable. With a revocable living trust, the creator of the trust, the trust “settlor” or “grantor,” has the ability to freely terminate the trust during his or her lifetime. Most of the time, the trust document will outline how to terminate the trust. Before terminating the trust, you will most likely have to transfer the property held in the trust into the name of the original property owners. You will also need to complete a declaration of revocation in order to terminate a revocable trust. The declaration will require general information about the trust as well as an express statement that you are revoking the trust. It is a good idea to sign the declaration in the presence of a notary. You may also need to file the revocation with the court.

With an irrevocable trust, things get a bit more complicated. While an irrevocable trust has added benefits such as tax advantages, it also has limitations. A trust is deemed irrevocable because the grantor cannot terminate the trust. The trustee of an irrevocable trust, however, may be able to terminate the trust, but can only do so in a way that is specified in the trust instrument. Therefore, the ability to terminate an irrevocable living trust largely depends on what the trust document says on this matter. If you granted the trust, the trust document may have provided for circumstances in which the trustee would have the ability to terminate the trust.

As noted above, a living trust that is used as a means to avoid probate, but still have property effectively transferred to the intended heirs, the trust will terminate once its purpose is complete and all of the property is distributed according to the trust document. However, it is still a good idea to send a final accounting and a letter to the trust beneficiaries informing them that the trust has been terminated. The final accounting would outline what was contained in the trust and how the trust assets were distributed.

We are Here for All of Your Estate Planning Needs

To effectively set up an estate plan that meets your needs, you will need to be familiar with some of the advantages and disadvantages of some estate planning tools. At Monk Law Firm, we are here to answer any of your questions as we work with you to establish the ideal estate plan for you and your loved ones. Contact us today.

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