How to Break an Irrevocable Trust

By River Braun, J.D.

How to Break an Irrevocable Trust

By River Braun, J.D.

The terms of an irrevocable trust may give the trustee and beneficiaries the authority to break the trust. If the trust's agreement does not include provisions for revoking it, a court may order an end to the trust. Or the trustee and beneficiaries may choose to remove all assets, effectively ending the trust.

Man sitting at table with open laptop reading paperwork

Typically, when a grantor creates an irrevocable trust, her objective is to ensure that it cannot be modified or revoked. The grantor's goal may be to protect assets from creditors or other parties. It can be extremely difficult to break an irrevocable trust once established. However, there are ways to do it.

Read the Documents Carefully

Some agreements contain language that allows a trustee to dissolve the trust if its purpose is no longer feasible. This also returns the property to the trust grantor. State law may require that all beneficiaries, including remainder beneficiaries, agree to the trust's dissolution. An agreement may also contain provisions to modify or revoke the trust to comply with changes in tax and other laws.

The trust agreement may also grant the trustee the authority to transfer assets. If so, the trustee may be able to move assets to a new revocable trust. Then, she can revoke the new trust agreement as soon as the assets are transferred. Again, state law might limit this option, and the beneficiaries may need to consent to the transfer. When ending an irrevocable trust, the main concern is that the beneficiaries' rights are protected.

Petition the Court

In some cases, a court agrees to break an irrevocable trust if the trustee or beneficiaries petition for assistance. For example, if the cost to administer an irrevocable trust has become excessive or unreasonable, a court may agree to dissolve it. Or a court may grant a modification or termination if the trust's purpose has become obsolete.

An irrevocable trust's terms can appoint a trust protector, who has the authority to modify the trust. The trustee appoints a third party to review the circumstances and facts related to his or the beneficiaries' desire to break the trust. If the trust protector finds that the agreement should be changed, she seeks court approval or signs the applicable documents, depending on state laws.

Dispose of the Trust's Assets

Getting rid of the assets held by a trust will not modify its terms, but this solution can serve to end the trust. With the appropriate authority, a trustee can sell or dispose of all assets and distribute the proceeds according to the trust terms. This effectively ends the irrevocable trust because it no longer serves a purpose.

State laws vary regarding who has the authority to break an irrevocable trust and under what circumstances. Your first step is to carefully read the trust's terms and then research state laws. Be sure to verify which state's laws govern the trust's agreement to ensure your research is correct.

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