A family trust is a revocable or irrevocable trust designed to distribute assets among family members, typically from an older generation to a younger generation. Family trusts are popular, in large part because a properly structured trust can prevent estate taxes from being assessed on the estate of the trust grantor when he dies. The ease with which a trust can be revoked depends largely on whether the trust is revocable or irrevocable.
It takes at least three parties to establish a trust – a grantor who supplies the assets, a beneficiary to eventually receive them, and a trustee to administer them for the benefit of one or more beneficiaries. The trustee is bound by the terms of a written trust instrument the grantor executes when the trust is established. In some cases, the grantor can serve as trustee.
Trusts can be divided into revocable trusts and irrevocable trusts. A trust is revocable if the grantor is still alive and has the power to revoke it and take back its assets. It is irrevocable if the grantor lacks this power. Normally, the trust instrument will state whether or not the trust is revocable. If the trust instrument is silent on this issue, state law will determine the nature of the trust. As of 2013, in the 25 states that have enacted the Uniform Trust Code, a trust is revocable unless the trust instrument specifically provides otherwise. An irrevocable trust can be revoked only under limited circumstances.
Revoking a Living Trust
Before you revoke a living (revocable) trust, re-title it and any titled trust property in your own name. Although this will require the cooperation of the trustee, in many cases, the grantor and the trustee are the same person. To revoke a revocable trust, you must sign a trust revocation declaration that identifies you and the trust, and states your intention to revoke the trust. Since state law governs the revocation of a trust, check to see if any special requirements – such as statutory wording – apply. Sign the revocation declaration in the presence of a notary public to verify your identity.
Revoking an Irrevocable Trust
State law varies considerably regarding permitted justifications for revoking an irrevocable trust, and most states require a court order. Some states allow you to revoke an irrevocable trust with the consent of the grantor and beneficiaries, in which case trust assets would typically revert to the grantor. If the grantor is already dead, the beneficiaries may petition a court to revoke the trust if all beneficiaries consent and the revocation does not defeat the purpose of the trust. This might happen, for example, if the expenses of administering the trust exceed remaining trust assets. In this case, the court will determine how trust assets are to be allocated among beneficiaries. The court will most likely distribute assets in a manner that most closely effectuates the grantor’s original intent.