How to Break an Irrevocable Trust

By David Carnes

Two types of trusts are possible: a revocable trust and an irrevocable trust. Although the grantor can unilaterally revoke a revocable trust, even a revocable trust becomes irrevocable when the grantor dies. The assets of an irrevocable trust belong to the trust beneficiaries, not the grantor. Even an irrevocable trust can be revoked under certain circumstances, although it is almost impossible for a creditor of the grantor or a beneficiary to revoke it. Although the trust laws of the various states differ on the grounds and procedures for revocation, they are all based on similar principles.

Step 1

Check the trust deed for instructions on how to dissolve the trust. Even though the trust is irrevocable, the deed may still contain instructions on dissolution as long as the trust grantor lacks the power to unilaterally revoke the trust. The trust deed may, for example, allow the trustee to unilaterally dissolve the trust and return its assets to the grantor if the trustee determines that the purpose of the trust can no longer be achieved.

Step 2

Obtain the written consent of all trust beneficiaries to dissolve the trust. In some states, this is all that is necessary to dissolve the trust, because the beneficiaries are considered the ultimate owners of the trust assets. Some states require the trustee to add his consent to the consent of the beneficiaries. Still other states require a court order in addition to consent.

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Step 3

Create a new trust with terms you desire. Have the trustee transfer assets from the old trust into the new trust, if the trust deed grants the trustee unfettered authority over the management of trust assets. You can create the new trust as a revocable trust and then revoke it as soon as the assets of the old trust are transferred to it.

Step 4

Petition a court for an order dissolving the trust. To obtain a court order, you must provide a legal justification for revocation. One such justification is the mental incompetence of the trust grantor at the time of the creation of the trust. Another justification may arise if the purpose of the trust can no longer be achieved: if a charity is the sole beneficiary, for example, and the charity ceases to exist, or if the sole trust beneficiary is dead. A court order will legally obligate the trustee to distribute trust assets as the court directs.

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References

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Any trust that you establish during your lifetime is a "living trust." Living trusts can be revocable, which means that the person creating the trust, known as the "grantor," can terminate it during her lifetime. However, living trusts can also be irrevocable, which means the grantor cannot terminate the trust. In this case, the trustee can terminate the trust, but only in the manner specified in the trust – for example, after all the assets have been distributed.

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An inheritance trust, usually called a testamentary trust, is a trust that is created by language contained in the last will and testament of the trust grantor. Since the trust does not go into effect until the grantor dies, it is considered an irrevocable trust under state probate law. Although the basic principles applicable to the termination of a testamentary trust are accepted by all states, procedures and details vary from state to state.

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