How Does a Trust End?

The way a trust ends depends on the type of trust and the terms of the trust document. It can also end when the assets are exhausted due to market conditions or mismanagement. The terms of the trust are identified in the trust instrument. One common way for a trust to end is after the distribution of all trust assets.

Understanding Trusts

A trust is a legal document created for the benefit of a beneficiary, like one of the following:

  • A minor child

  • A surviving spouse

  • A family member with special needs

  • A pet

  • A charity

The person who creates the trust is referred to as the grantor or settlor. The grantor designates a trustee, who holds legal control of the assets in the trust's name and must act in the best interests of the beneficiary.

Many people create trusts for tax purposes. A trust operates as a tax shelter, reducing the grantor's income tax. After the grantor dies, it reduces federal estate tax and keeps assets in the trust out of probate court. The 2023 federal estate tax exemption limit is set at $12.92 million for an individual decedent. In contrast to a trust, a last will and testament must go through the probate process and becomes a public record.

Basic Trust Terminology

To create a trust, we need the following:

  • An original owner

    • Grantor

    • Trustor

    • Settlor

  • Property or trust assets

    • Bank accounts

    • Retirement accounts

    • Life insurance policies

    • Personal property

    • Real estate

  • A trust instrument created by the grantor while the grantor is alive or through a testamentary trust after they died.

  • Designation of Trustee

    • 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. The duty ends when the trust ends.

  • Transfer of Assets

    • The trust assets are transferred into the care of the trustee. The trustee 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. A grantor can name multiple trustees, in which case the trustees would be co-trustees.

How Do Different Types of Trusts End?

There are two main types of trusts, living (inter vivos) trusts and testamentary trusts. A living grantor establishes a living trust. These different types of trusts end for reasons specific to each type.

Revocable Trusts

A revocable trust is a type of living trust that exists during the grantor's lifetime. Often, the grantor or their designee manages the revocable trust. 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 benefits as other types of trusts.

Irrevocable Trusts

Irrevocable trusts generally end after the death of the grantor, when the trustee distributes all of the assets to the beneficiaries.

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 minor 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 one. 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 will end when the assets that make up the trust property are exhausted. This can happen from financial mismanagement by the trustee(s), in which case the trustee will likely face 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 trustee's fault. Trust assets are not immune to market conditions and the overall economy. However, failing to invest assets could itself be a violation of fiduciary duty. A trustee has to balance risks.

A trust could also end if the assets in the trust are destroyed. For example, consider a qualified personal residence 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. The decedent usually includes instructions in the trust instrument regarding how to distribute the assets.

When there are no instructions, the trustee and the beneficiaries must decide how to split 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 conflict with one another, a lawyer's assistance is even more important. An experienced estate planning attorney can mediate a trust dispute or litigate a trust if necessary.

Get Legal Help

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. The way a trust ends depends on the type of trust and the terms of the trust document. It can also end when the assets are exhausted due to market conditions or mismanagement. The terms of the trust are identified in the trust instrument. One common way for a trust to end is after distribution of all trust assets.

Understanding Trusts

A trust is a legal document created for the benefit of a beneficiary, like one of the following:

  • A minor child

  • A surviving spouse

  • A family member with special needs

  • A pet

  • A charity

The person who creates the trust is referred to as the grantor or settlor. The grantor designates a trustee, who holds legal control of the assets in the name of the trust and must act in the best interests of the beneficiary.

Many people create trusts for tax purposes. A trust operates as a tax shelter, reducing the grantor's income tax. After the grantor dies, it reduces federal estate tax and keeps assets in the trust out of probate court. The 2023 federal estate tax exemption limit is set at $12.92 million for an individual decedent. In contrast to a trust, a last will and testament must go through the probate process and become public record.

Basic Trust Terminology

To create a trust, we need the following:

  • An original owner

    • Grantor

    • Trustor

    • Settlor

  • Property or trust assets

    • Bank accounts

    • Retirement accounts

    • Life insurance policies

    • Personal property

    • Real estate

  • A trust instrument created by while the grantor is alive or through a testamentary trust after they have died.

  • Designation of Trustee

    • 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. The duty ends when the trust ends.

  • Transfer of Assets

    • The trust assets are transferred into the care of the trustee. The trustee 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. A grantor can name multiple trustees, in which case the trustees would be co-trustees.

How Do Different Types of Trusts End?

There are two main types of trusts, living (inter vivos) trusts, and testamentary trusts. A living trust is established by a living grantor. These different types of trusts end for reasons specific to each type.

Revocable Trusts

A revocable trust is a type of living trust that exists during the lifetime of the grantor. Revocable trusts are often managed by the grantor or their designee. 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 benefits as other types of trusts.

Irrevocable Trusts

Irrevocable trusts generally end after the death of the grantor, when all of the assets are distributed by the trustee to the beneficiaries.

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 minor 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 will end when the assets that make up the trust property are exhausted. This can happen from financial mismanagement by the trustee(s), in which case the trustee will likely face 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. However, failing to invest assets could itself be a violation of fiduciary duty. A trustee has to balance risks.

A trust could also end if the assets in the trust are destroyed. For example, consider a qualified personal residence 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 decedent included instructions in the trust instrument regarding how to distribute the assets.

When there are no instructions, the trustee and the beneficiaries must decide how to split 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 is even more important. An experienced estate planning attorney may be able to mediate a trust dispute or litigate a trust if necessary.

Get Legal Help

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. Speak to a local estate planning attorney today. 

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