Preparing for the unexpected is one of the main purposes of estate planning. If the time ever comes when you are unable to manage your property or assets yourself, a trust is a great way to prepare for the future management of your property, by someone you trust. Just as incapacity is not always permanent, the period that a trust is effective can also terminate. When does a revocable trust end? That depends on the terms of the trust and the circumstances.
What is a trust?
A trust is an arrangement between the original owner of certain property, known as the “grantor”, and the trustee. The trustee is designated to take care of the property for the benefit of a third-party, known as the beneficiary. The property is transferred to the trust, and instructions regarding how to use and manage the property are spelled out in the written trust agreement.
Common situations where trusts are terminated
The most common way for a trust to end is when all of the trust property is exhausted. For example, if the trust property consists of stocks or cash, the trust will end if all of the funds are paid out to the beneficiary. On the other hand, if the property is tangible, such as an automobile or a boat, the trust would end if the property is ever destroyed.
Obviously, if the terms of the trust specify certain conditions in which the trust ends, those terms will control. Many trusts include an ending date, or specific conditions that must be met before the trust will end. The most common example is the trust created for a minor, which ends when that child turns 21 or graduates from college. When those conditions are met, the assets in the trust are transferred to the beneficiary and the trust ends.
In some situations, when the value of the trust falls below a minimum amount, the trustee can determine that continuing the trust would defeat or substantially impair the accomplishment of the trust’s goal. In that situation the trust can be terminated. Even if the trust is irrevocable, some states permit the trust to be terminated early, when the material purpose of the trust has been accomplished.
What happens after the trust terminates?
If a trust ends, and there is property remaining in the trust, the beneficiary and trustee will normally work together to decide the best method of distributing the remaining property. That is, of course, unless the trust agreement has specific situations regarding how to proceed in such a situation. Some trusts include instructions to donate remaining assets to a charity or to distribute them to a residual beneficiary.
If you have questions regarding trust creation, trust termination, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.