Trusts are designed to terminate after the purposes of the trust have been fulfilled. For example, the trust agreement may state that it terminates upon the death of a named beneficiary, when its assets fall below a certain dollar amount, upon the expiration of a set date or after all trust assets are distributed. However, there are circumstances in which the creator of a trust may wish to terminate it before it has fulfilled its purpose or been administered. A trustee of a trust may also find it necessary or desirable to terminate a trust. This page provides a list of steps required to terminate a trust.
There are several issues that determine what is required to terminate a trust, including: 1. What type of trust? For example, is it a revocable living trust or an irrevocable trust? See
estate planning trusts.2. What does the trust agreement say about termination?3. What does state law provide with regard to terminating this type of trust?4. Is terminating the trust consistent with the material purposes of the trust?5. Do all beneficiaries and the settlor, if applicable, consent to the trust termination?In some cases, a trustee that has exhausted other options for terminating a trust may have to seek a court order to terminate the trust. For example, if the trust needs to be terminated on a date earlier than provided in the trust document, and there is a strong basis for such termination, a trustee may have no alternative but to take formal legal action to terminate the trust. A settlor or beneficiary of the trust may also petition the court to terminate a trust in some instances. If you are the settlor, beneficiary or trustee of a trust and wish to terminate it, contact an attorney. Terminating a trust early is different than closing or ending a trust that has already been administered. For information on how to close a trust after administration, see how to end a trust. For the list of steps you can take to revoke a living trust, see how to revoke a living trust.
List of Steps to Terminate a Trust
1. Read the trust agreement thoroughly to ensure you comply with provisions for terminating the trust. In order to determine whether you can terminate the trust, you must understand what type of trust is involved. For an overview of different types of estate planning trusts, see more about trusts.2. Consult an estate planning attorney for guidance on how to properly terminate the trust. This is important due to the potential liability associated with actions taken as a trustee. If court approval may be required to terminate the trust based on state law, an ongoing dispute involving the trust or for some other reason, you may need to petition the court for approval to terminate. For information every trustee should know, read for trustees.3. Pay all debts and expenses of the trust. Consult your accountant about whether any amounts need to be held in reserve to pay any final debts and expenses.4. Close trust accounts and transfer title to trust property out of the trust.5. Notify trust beneficiaries and other interested parties that the trust will terminate on a particular date and you are resigning as trustee. Provide a final trust accounting if required.6. Complete paperwork to terminate the trust in accordance with the trust agreement and applicable state law. You can find information on state laws that apply to trusts on our
Trust Law page.7. If the trust has an EIN and has been filing tax returns, ask your CPA or accountant to file any final tax returns and complete any required filings with the IRS. For an overview of tax returns that may need to be filed for the trust, such as IRS Form 1041, Schedule K-1, gift tax returns, and tax returns due for the deceased, refer to our free
Trust Administration Guide.8. Store trust records and files securely. You may need to access trust documents and records at a later date.For more detailed instructions on the steps required to terminate or dissolve a trust, get one of the trust administration guides featured on our
books for trustees page. Whether you have questions about when a trust ends, how to distribute trust assets to beneficiaries, whether you need beneficiaries to sign anything, and how to file final tax returns for a trust, a comprehensive reference manual for trustees will be a good resource to have throughout the process.
Terminating Irrevocable Trusts
Typically, an irrevocable trust cannot be terminated without the consent of all grantors, donors or settlors of the trust, as well as all beneficiaries. If such consent may be obtained, these parties will all need to sign appropriate documentation to terminate the trust. For an overview of these types of trusts, see irrevocable trusts.
If the settlors of the irrevocable trust and the intended beneficiaries do not all agree to terminate it, a court order may be required to terminate the trust. Anyone seeking to terminate an irrevocable trust should consult an experienced trusts and estates attorney regarding the options for terminating the type of trust involved and applicable state law requirements. See finding an attorney.
INFORMATION ON THIS SITE, INCLUDING ARTICLES, ESTATE PLANNING FORMS, AND THE ESTATE PLANNING BLOG, IS NOT LEGAL ADVICE. Pennyborn.com is not a law firm and is not a substitute for a lawyer. Your use of this site does not create an attorney-client relationship.