Can an Irrevocable Trust Be Reversed?

By David Carnes

A trust is a legal vehicle that allows you to place assets under the control of a trustee, and have your trustee distribute these assets to your beneficiaries. Two type of living trusts are possible -- revocable and irrevocable. An irrevocable trust is difficult but not impossible to revoke or terminate. Although state laws differ, the basic principles of irrevocable trusts are the same in every state.

A trust is a legal vehicle that allows you to place assets under the control of a trustee, and have your trustee distribute these assets to your beneficiaries. Two type of living trusts are possible -- revocable and irrevocable. An irrevocable trust is difficult but not impossible to revoke or terminate. Although state laws differ, the basic principles of irrevocable trusts are the same in every state.

Overview of Irrevocable Trusts

You can create an irrevocable trust by drafting and signing a trust instrument that names a trustee and at least one beneficiary, and instruct the trustee how to distribute trust assets. You must then transfer assets into the trust, which means that you must transfer title to titled assets such as real estate. Your trust instrument should clearly state whether the trust is revocable or irrevocable. Some states assume that a trust is revocable unless the trust instrument states otherwise, while other states assume that it is irrevocable unless the trust instrument states otherwise.

Protect your loved ones by a legally binding will. Make a Will Online Now

The Uniform Trust Code

The Uniform Trust Code is a model law, drafted by the National Conference of Commissioners on Uniform State Laws, that individual states are free to adopt or reject. Many states have adopted at least portions of the Uniform Trust Code. The terms of the Uniform Trust Code allow an irrevocable trust to be terminated under certain circumstances. Many states that do not use the Uniform Trust Code still allow irrevocable trusts to be terminated under certain circumstances.

Automatic Termination

Often, the trust instrument may include a provision that automatically terminates the trust at a certain point. The trigger might be an event, such as the death of the founder of the trust, or a particular date. If the trust automatically terminates, its assets must be distributed according to the provisions of the trust instrument if any such provisions exist, or in a manner consistent with the purposes of the trust.

Termination By Consent

Continuation of the trust may no longer be necessary to achieve its purpose. A trust might be established, for example, to provide financial support to a disabled child who later dies. In such cases, a state court may terminate the trust if the settlor and all beneficiaries agree. Some states, such as Ohio, allow termination by consent under some circumstances even if the termination is inconsistent with trust purposes. State laws also contain provisions for termination by consent if, for example, the settlor is dead, or if an infant beneficiary is incapable of giving consent. Typically, trust assets must be distributed as agreed by the beneficiaries.

Termination of an Uneconomic Trust

In some cases, it might not make economic sense to continue a trust. Trust assets, for example, may be small in comparison with the costs of administering the trust. In this case, the laws of many states allow the trustee to petition a state court to terminate the trust. If the court accepts the petition, the trustee must distribute trust assets in a manner that is as consistent as possible with the purposes of the trust.

Protect your loved ones by a legally binding will. Make a Will Online Now
Irrevocable Family Trust Laws in Massachusetts

References

Resources

Related articles

Living Trusts in Michigan

A trust is a vehicle for holding assets. In the United States, trusts are governed by state law. Although the Michigan Trust Code, found in the Estates and Protected Individuals Code, includes certain distinctive features, the basic principles of Michigan trust law are similar to elsewhere in the United States.

How to Manage a Living Trust

The trustee, who is bound by several legal requirements, manages a trust. For a living trust, the trustee is often the person who originally created the trust, known as the grantor or settlor. Trusts operate under state law, which varies. The American Bar Association endorses the Uniform Trust Code, which is enacted in 23 states and being considered for adoption by three more as of March 2012. The UTC is a good framework, but you should review the laws of your state prior to undertaking the responsibility of being a trustee.

How to Break a Trust in Missouri

In Missouri, trusts are an effective way to safeguard and transfer property. The person establishing the trust, known as the settlor, has wide discretion in determining when and how the trust assets are to be distributed to named individuals, referred to as beneficiaries. In some cases, it becomes desirable for the beneficiaries to "break" the trust and allocate the remaining assets. However, the authority to terminate a trust is governed by Missouri law, which provides only limited grounds for termination.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Does an Irrevocable Trust Automatically Terminate Upon a Certain Date?

An irrevocable trust is an estate planning tool that the grantor can use for a variety of reasons, including minimizing ...

How to Dissolve Inheritance Trust

An inheritance trust, usually called a testamentary trust, is a trust that is created by language contained in the last ...

What Happens When a Trust No Longer Has Assets?

Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, ...

North Carolina Law on Irrevocable Living Trusts

In North Carolina, irrevocable living trusts can be established during a person's lifetime, often for estate planning ...

Browse by category