Trusts are important estate planning tools for many people. However, they were not meant to last forever. The steps involved for ending a trust depend on the nature of the entity. While it is relatively easy to end a revocable trust, terminating an irrevocable trust is much more complicated.
Reasons for Terminating a Trust Early
Trusts typically include specific circumstances and terms for termination. Under state law, interested parties such as beneficiaries or trustees can ask the probate court to terminate a trust if it is no longer economical or feasible to continue the trust. Common examples of when this occurs are as follows:
- The assets in the trust are valued under $100,000: Depending on the number of beneficiaries and the type of trust, it can make more sense to distribute the assets directly, allowing the beneficiaries to manage the property on their own. When assets are limited, this is often a more efficient way to administer property in the trust.
- The trust’s value does not justify the cost and fees of administration: Sometimes, the fees and other expenses associated with a trust can result in the depletion of the property within the trust. Managing a trust can reduce the value more quickly than necessary. If the property within a trust is reduced to a level where the costs and fees are disproportionate to the value of the trust, it may be appropriate to end the trust. When this happens, the property within the trust can be distributed to the beneficiaries directly.
- The trustee is replaced or removed: When a trustee is replaced or removed, it provides an opportunity to revisit all the terms of the trust. After review, interested parties may determine that terminating the trust is more beneficial than keeping the trust.
Trusts are sometimes terminated for other reasons, as well. These include the death of a beneficiary, divorce, court intervention, or all beneficiaries agree that the trust should be terminated.
How to Terminate a Revocable Trust
Again, revocable trusts are the easiest type to terminate. These trusts can be changed by the founder at any time. Just as revocable trusts are implemented for a number of reasons, they can also be revoked or amended for multiple reasons. Revocable trusts can be terminated in three simple steps, which are as follows:
- Plan for the property: The first step in ending a revocable trust is to make a plan for the assets. This means removing the property from the trust and distributing it as you see fit. For example, you might want to transfer cash back into your own bank account. You could also provide instructions on how the property is to be distributed after the trust is terminated, such as leaving a beneficiary instruction to transfer the property.
- Draft a declaration of intent: The second step is drafting a declaration of intent. Terminating a revocable trust is largely a matter of paperwork. It can be as simple as drafting a document stating your intention to terminate the trust and then have it notarized.
- File a petition with the court: Lastly, you should then file a petition with the probate court or other entity to terminate the trust. Typically, you must only petition the probate court if the trust was registered with the court.
How to Terminate an Irrevocable Trust
As their name suggests, irrevocable trusts are harder to dissolve than revocable trusts. Although the founder of an irrevocable trust can add to it, they cannot remove anything from the trust or change beneficiaries or trustees. In the majority of cases, ending an irrevocable trust requires a court order.
Judges usually need good reason to dissolve an irrevocable trust. You may be able to terminate the trust if you can show that it has become impractical or illegal to operate. Or, you may be able to show that the terms of the trust no longer meet its purpose if the trust has a purpose that is clearly stated. If the trust is based on a relationship, such as a marriage, showing that the relationship no longer exists may be enough to dissolve a trust.
Our Nevada Trust Administration Lawyer Can Help
Terminating a trust depends on the nature of the trust itself, but it always has the potential to become a complicated situation. If you have drafted a trust and now wish to revoke it, our Nevada trust administration lawyer at Boyer Law Group can help you through the process. Call us now at 702-255-2000 or contact us online to schedule a consultation and to learn more about how we can help.