How to Break an Irrevocable Trust

by David Carnes
    Some states require a court order to revoke an irrrevocable trust.

    Some states require a court order to revoke an irrrevocable trust.

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    Two types of trusts are possible: a revocable trust and an irrevocable trust. Although the grantor can unilaterally revoke a revocable trust, even a revocable trust becomes irrevocable when the grantor dies. The assets of an irrevocable trust belong to the trust beneficiaries, not the grantor. Even an irrevocable trust can be revoked under certain circumstances, although it is almost impossible for a creditor of the grantor or a beneficiary to revoke it. Although the trust laws of the various states differ on the grounds and procedures for revocation, they are all based on similar principles.

    Step 1

    Check the trust deed for instructions on how to dissolve the trust. Even though the trust is irrevocable, the deed may still contain instructions on dissolution as long as the trust grantor lacks the power to unilaterally revoke the trust. The trust deed may, for example, allow the trustee to unilaterally dissolve the trust and return its assets to the grantor if the trustee determines that the purpose of the trust can no longer be achieved.

    Step 2

    Obtain the written consent of all trust beneficiaries to dissolve the trust. In some states, this is all that is necessary to dissolve the trust, because the beneficiaries are considered the ultimate owners of the trust assets. Some states require the trustee to add his consent to the consent of the beneficiaries. Still other states require a court order in addition to consent.

    Step 3

    Create a new trust with terms you desire. Have the trustee transfer assets from the old trust into the new trust, if the trust deed grants the trustee unfettered authority over the management of trust assets. You can create the new trust as a revocable trust and then revoke it as soon as the assets of the old trust are transferred to it.

    Step 4

    Petition a court for an order dissolving the trust. To obtain a court order, you must provide a legal justification for revocation. One such justification is the mental incompetence of the trust grantor at the time of the creation of the trust. Another justification may arise if the purpose of the trust can no longer be achieved: if a charity is the sole beneficiary, for example, and the charity ceases to exist, or if the sole trust beneficiary is dead. A court order will legally obligate the trustee to distribute trust assets as the court directs.

    Tips & Warnings

    • If you deposit assets into the trust simply to avoid having them seized by existing creditors, your creditors might by able to seize these assets without the consent of trust beneficiaries by alleging fraudulent conveyance.

    About the Author

    David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.

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