What Happens If the Grantor of a Trust Dies?

By Phil M. Fowler

What happens to a trust when the grantor, or trust creator, dies depends on the terms of the trust. Since a trust represents a fiduciary relationship regulated by state law, independent of the grantor, a trust can continue in existence long after the grantor dies. On the other hand, when a grantor creates a trust, he may include instructions for an automatic change to, or termination of, the trust when he dies.

What happens to a trust when the grantor, or trust creator, dies depends on the terms of the trust. Since a trust represents a fiduciary relationship regulated by state law, independent of the grantor, a trust can continue in existence long after the grantor dies. On the other hand, when a grantor creates a trust, he may include instructions for an automatic change to, or termination of, the trust when he dies.

Independent Entity

Just as a corporation or limited liability company exists independent of the individual people who create them, so too does a trust exist independent of the grantor. The grantor is the person who creates the trust by defining the trust's terms, funding it with property, appointing a trustee and designating its beneficiaries. Beyond these actions, the trust is not dependent on the grantor for continued existence. Once appointed, the trustee acts in a fiduciary capacity and administers the trust and trust property on behalf of the beneficiaries.

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Grantor as Trustee

It is a common estate planning practice for a grantor to name himself as the initial trustee of the trust. If the grantor is the trustee at the time of his death, a new trustee, sometimes called a substitute trustee or successor trustee, will take over in the grantor's place. If the trust does not identify the successor trustee, any of the trust beneficiaries can petition a local state court judge to appoint a new trustee to manage the trust.

Grantor as Beneficiary

It is common for a grantor to also be named as a beneficiary of a trust. However, the fact that a deceased grantor was also named beneficiary of a trust does not affect the existence of the trust after the grantor's death. Instead, any trust property that should have been distributed to the grantor as a beneficiary under the trust will now be transferred to the grantor's surviving heirs according to the terms of his will, if the grantor had a will, or state intestacy laws if he did not.

Trigger Mechanism

A grantor can alter the general rule that a grantor's death will not affect a trust. Grantors have authority, at the time they create a trust, to define the terms and conditions of the trust. A grantor can, among other things, make his death an automatic trigger for certain actions to occur under the trust. A grantor can include a condition that the trust terminate automatically upon his death, or that the trustee should make certain distributions of property upon his death. Any such trigger mechanisms are entirely within the grantor's discretion at the time the trust is created.

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