A trust agreement is a popular estate planning tool that can be used to pass down assets to loved ones, charities, or even to a family pet. If you recently learned that you are the beneficiary of a trust, you probably have several questions about how the trust works and how it terminates. Because every trust agreement is unique, it is always best to consult with an experienced trust attorney about the terms of your trust agreement. In the meantime, the Los Angeles trust attorneys at Schomer Estate & Wealth Advisors explain how long a trust will last and how one terminates.
What Is a Trust Agreement?
As the beneficiary of a trust, you will likely receive a copy of the trust agreement. This is the legal document used to establish the trust. The Settlor of the trust (the person who created the trust) named a Trustee in the trust agreement. The Trustee is the person or entity (such as a bank) appointed to manage the trust assets and administer the terms of the trust. The Settlor also created the terms of the trust. Those terms establish things such as what kind of trust was created (revocable or irrevocable, for example), what assets are to be used to fund the trust, and how the assets are to be distributed to the beneficiaries of the trust.
Can a Trust Last Forever in California?
A trust can be used to pass down the family wealth to multiple beneficiaries who may span more than one generation. A trust cannot, however, last forever in California. A legal concept referred to as the “rule against perpetuities” prevents a trust from remaining active indefinitely. California law requires a trust to terminate within 90 years or no later than 21 years after the death of an individual alive at the time the trust was created. For simplicity, it is easiest to think of a trust as being required to terminate within 90 days after its creation.
How Does a Trust Terminate?
While a trust must not violate the Rule Against Perpetuities or the 90-year limit, a trust can terminate long before it reaches either of those limitations. How a trust terminates depends on several factors, beginning with the type of trust created.
If the trust is a revocable living trust, the Settlor retains the power to terminate the trust at any time and for any reason. In fact, the Settlor is not required to give a reason for terminating the trust. The trust agreement itself may also include an end date for the trust. In that case, everyone knows ahead of time exactly when the trust will end. If the trust is a testamentary trust it will not activate until the death of the Settlor, meaning it can be revoked before the Settlor’s death but once it activates it becomes an irrevocable trust. An irrevocable trust is a bit more difficult to terminate than a revocable trust if there is no termination date included in the trust agreement.
Even if the trust agreement does not specify an end date, it may explicitly give the Trustee, a beneficiary, both the authority to terminate the trust. California law also provides specific reason for a trust to terminate, including:
- The trust purpose is fulfilled.
- The trust purpose becomes unlawful.
- The trust purpose becomes impossible to fulfill.
Finally, a court always has the legal authority to order the termination of a trust; however, judges are reluctant to do so absent a compelling reason. One reason judges do frequently order the termination of a trust is when the assets held by the trust no longer justify the expense of administering the trust. When that happens, the court will usually terminate the trust and order the assets disbursed to the beneficiaries.
Contact Los Angeles Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how long a trust will last, contact the experienced Los Angeles trust attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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