How to Abolish a Family Trust & Get the Money

By David Carnes

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.

Trust Structure

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.

Revocability

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.

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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.

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References

Related articles

Irrevocable Family Trust Laws in Massachusetts

An irrevocable family trust can be effective estate planning tool. When an individual establishes this type of trust, he appoints an individual, known as a trustee, to oversee the administration of the trust. In Massachusetts, specific rules apply to the trustee. State law also sets forth the limited circumstances for the modification or termination of the trust. Understanding the state laws that apply to irrevocable family trusts will help ensure the proper distribution of property held in the trust.

How to Terminate Blind Trusts

A blind trust is a special type of trust where the beneficiaries are unaware of the trust's assets and a designated trustee has full authority to manage the trust, including the purchase, sale and exchange of its assets. Politicians and corporate officers often set up blind trusts to avoid conflicts of interest and public scrutiny. In some states, it is legal for a lottery winner to set up a blind trust so that he can anonymously claim his winnings. A trust creator, called the settlor, can set up his blind trust as either a revocable or irrevocable trust. If the blind trust is set up as a revocable trust, the settlor can terminate the trust by following the revocation procedure set forth in either the trust agreement or state statutes. While revoking an irrevocable trust is not always impossible, the process is difficult as it usually requires court approval and consent of all the trust beneficiaries. Common reasons a settlor may want to terminate his blind trust include a change in financial circumstances, unhappiness with the trust’s beneficiaries or desire to shelter trust assets from tax authorities.

Can the Powers of the Successor Trustee Be Revoked?

A successor trustee is a trustee who takes over management of a trust after the original trustee leaves office. He may be a party named in the trust deed, consented to by the trust grantor or beneficiaries, or appointed by a court. State laws provide several ways in which a successor trustee's powers can be revoked and the trustee removed from the position.

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