Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, must have trust assets, i.e. property, a trustee and beneficiaries. In general, when a trust runs out of assets, the purpose of the trust is considered fulfilled and the trust may be terminated. Depending on the circumstances, the trust may need to be officially dissolved by obtaining court approval.
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A trust is an arrangement -- created by a trust document -- whereby a trust creator, also referred to as a "settlor," transfers assets to a trustee. The trustee has a responsibility to manage, protect and distribute trust assets according to the terms of the trust document. A trust must have a trustee, assets and beneficiaries to be valid. The absence of assets, in particular, will render a trust arrangement impossible.
Trust assets may include money, royalties, stocks, and other types of property interests. Such trust assets must be ascertainable when the trust is created. In other words, expectancy or anticipation of income or property is not enough. Trust assets include any income earned on the principal. When a trust's income and principal are depleted, the trust is generally considered to have fulfilled its purpose.
Final distributions of a trust may be made when the trust no longer has assets, has become too expensive to administer, or the trust's termination date -- as stated in the trust document -- has arrived. Once final distributions are made to beneficiaries, a trust with a fixed duration may automatically terminate or be terminated with a court's permission.
Terminating a Trust
Although state law varies -- and the rules of trust termination vary depending on the type of trust -- a trust with assets that are less than the amount it takes to administer the trust may require the beneficiaries' consent and court approval before it may be terminated. Some states, such as Florida, allow a trustee to terminate a trust if its total value is less than $50,000 and he believes the value of trust assets are insufficient to continue administering the trust.