How Does a Trust End?

A trust operates as a tax shelter, reducing the grantor's income tax. And after they die it reduces estate tax, if there is any, and keeps assets in the trust out of probate court.

A trust can be used to transfer assets directly and immediately to an heir and then end, or it can remain in place for years, providing financial support to the beneficiary, or it may never end. Learn more about how a trust ends.

What Is a Trust: Some Basic Terminology

A trust is a property arrangement in which:

• The original owner (called a grantor, trustor, or settlor) of some property (bank accounts, investments, personal property, real estate), transfers the current or future ownership and management of the property (the trust assets) through the use of an estate planning document called a "trust instrument."
• The trust instrument could be created while the grantor is alive or through the use of a testamentary trust after they have died.
• The trust assets are transferred into the care of a person called a "trustee," which could be the grantor, in the case of a revocable living trust, or a person chosen by the grantor in the case of an irrevocable trust.
• The trustee has a fiduciary duty to ensure proper administration of the trust for the benefit of the named beneficiaries of the trust. That fiduciary duty begins as soon as the trust is established, even before the death of the grantor, and ends when the trust ends. 

The terms of the trust — how assets should be invested, how property may be used, when it is given to the beneficiary, etc. — are all spelled out in the trust instrument.

A Trust Ends When Its Purpose Is Fulfilled

How a trust ends depends on the kind of trust it is and the terms of the trust document. It can also end when the assets are exhausted due to market conditions or mismanagement.

Revocable Trusts

A revocable trust exists during the lifetime of the grantor and is usually managed by the grantor or someone they designate. The grantor can choose to revoke the trust and regain and retain ownership of the assets at any time. A revocable living trust does not have the same tax sheltering benefits as other types of trusts.

Irrevocable Trusts

For irrevocable trusts, the most common time to end is soon after the death of the grantor, when all of the assets are distributed by the trustee to the heirs.

The grantor can also specify an end date or a condition that must be met before the assets can be distributed. For example, the grantor can say that a child will receive money from their trust once the child turns 18 or graduates from college.

Special Needs Trusts

A family member with an incapacity may need financial help for many years. By federal and state law, a trust can remain open for up to 21 years AFTER the death of anyone living at the time the trust was created. The special needs trust remains in effect throughout the person's lifetime.

As the trustee is often older than the beneficiary, a successor trustee will need to be named to continue to provide fiscal oversight to a trust. If a trust company is operating the trust, this is more easily accomplished.

Charitable Trusts

Charitable trusts continue in perpetuity. They do not have to have an end date although the terms of the trust could create an end date. The trust instrument may, for example, specify that a certain percentage of its assets be distributed each year until all assets are gone.

Mismanagement or Poor Financial Conditions

A trust could end when the assets that make up the trust property are exhausted. This could happen from financial mismanagement by the trustee(s), in which case the trustee could find themselves facing probate litigation.

Of course, if most of the estate is invested in the stock market where it is earning interest, and the stock market crashes, that is likely not the fault of the trustee. Assets of a trust are not immune to market conditions and the overall economy. Failing to invest assets could itself be a violation of fiduciary duty because it would not preserve the assets of the estate by failing to earn interest. A trustee has to balance risks.

A trust could also end if the assets in the trust are destroyed. For example, consider a grand estate held in trust for loved ones. If the home catches fire and everything in it is destroyed, the trust may end.

What Happens When a Trust Ends?

Typically, a trust ends with the distribution of property. Usually, the deceased included instructions in the trust instrument regarding how the assets are to be distributed.

When there are no instructions, the trustee and the beneficiaries must decide a fair way of splitting the assets. While a probate lawyer is not strictly necessary for this process, it might be useful to consult one if you have questions about your inheritance rights.

In situations when the beneficiaries are in conflict with one another, a lawyer's assistance will be even more important. An experienced estate planning attorney may be able to mediate a trust dispute, or trust litigation may be necessary.

Get Legal Advice in a Trust Attorney-Client Relationship

Whether you want to establish a trust, have questions about managing a trust, or are concerned about the benefits you are receiving from a trust, an experienced estate planning attorney can help. The attorney-client relationship is confidential. You can get the legal advice you need without worry. Contact a local estate planning attorney to discuss your trust-related situation.