If you have decided, for whatever reason, that your revocable living trust no longer suits your needs, it is a fairly simple matter to dissolve the trust. This is also called revoking the trust. The process is similar to creating a trust, but the dissolution document is much less complex than the document that created the trust. The following discussion only applies to revocable trusts.
In this article, the following terms will be used:
- Grantor. This is the person, or persons, who created the trust. With a revocable trust, the grantor has the power to revoke it. When this article uses the word “you," it refers to the grantor.
- Trustee. This is the person, or persons, who are designated in the trust as being responsible for the trust management. The grantor is also the trustee in most revocable trusts, but a third party is sometimes designated.
- Beneficiary. This is a person for whose benefit the trust was created.
Amending or Dissolving a Trust
There are several changes in circumstances that may justify either amending or dissolving a revocable trust. Changing a trustee, or adding or deleting a beneficiary may often be accomplished by an amendment to the trust document. However, if you want to make a number of changes, or if there are certain major changes in circumstances, it may be better to revoke the trust entirely. You can then either continue without a trust, or create a new one.
Three common major changes that can justify revocation are when an estate can be arranged so that a trust is no longer necessary, when a single grantor gets married and wants to set up a joint trust, or when a married couple who are the grantors get divorced. In some cases, revocation can be called for if a major beneficiary dies or falls out of favor with the grantor.
The dissolution of a revocable trust should begin with reading the trust document to find out if it requires any particular actions. For example, a common trust agreement provision is: “Any amendment or revocation of my Trust Agreement made during my lifetime shall be by a written instrument signed by me and delivered to my Trustee." Of course, if the grantor is also the trustee, delivery is automatic. You also need to check your state's law to see if there are any specific revocation requirements.
Once you are sure you understand any trust agreement or state law requirements, you can proceed with dissolving the trust. This will typically involve taking the actions discussed below.
Defunding the Trust
Part of the creation of your trust involved transferring assets into the trust, which is called funding the trust. This likely involved executing deeds and other title transfer documents to transfer title to real estate and personal property from you to the trust. You will now need to reverse that process. This requires the trustee to execute similar documents to transfer title from the trust back to your personally.
With most revocable trusts, the grantor is also the trustee. If you designated someone else as trustee, you will need to have the trustee make the transfers. Hopefully, you chose a trustee who will follow your instructions, but if the trustee refuses, you can amend the trust to remove the current trustee and designate yourself as trustee.
Trust Revocation Document
The trust was created by a written document, and the dissolution of the trust requires a written document. While your trust document no doubt consists of numerous pages, a revocation typically consists of less than one page.
The revocation will include the official name of the trust, the date of the trust, where the trust was created, the name of all grantors, and a statement to clearly indicate your intent to revoke the trust. For example: “The George and Martha Washington Revocable Living Trust, created by grantors George Washington and Martha Washington on April 1, 2018, in Fairfax County, Virginia, is hereby revoked and dissolved effective as of the date hereof."
The revocation document should be dated, and signed by all grantors before a notary public. Look at your trust agreement to see how it was signed. The revocation should be done in the same manner. For example, if the trust agreement was signed by two witnesses and notarized, then the revocation should be signed by two witnesses and notarized.
Once the revocation is executed, it is a good idea to make sure that certain parties are aware of the revocation. Therefore, you may wish to deliver a copy to any trustees or successor trustees designated in the trust agreement, and to any persons or financial institutions that were aware of the trust, such as banks and securities brokers. If your beneficiaries are aware of the trust, you may also wish to provide them with a copy of the revocation.
The revocation should be kept with the original trust agreement and your other important papers. In some states a revocable trust is registered with a court. If that is the case, the trust revocation document should also be filed with the court.
Once your trust is defunded and dissolved, you can proceed with creating a new trust or setting up your alternative estate plan.
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