A living trust is one of the most common tools used in estate planning. If you are contemplating the addition of a living trust to your estate plan, you probably have a number of questions about how a trust might fit into your plan, how to create a trust, and how a living trust terminates. To help answer one of those questions, the attorneys at Kulas & Crawford explain how and when a living trust terminates.
Creating a Living Trust
Before discussing how to terminate a trust, it helps to learn the elements that go into creating a trust. Once used almost exclusively by wealthy families as a vehicle by which the family fortune was passed down through the generations without paying taxes on the transfer of wealth, trusts are now commonly found in the average person’s estate plan. Trusts have also evolved to the point where there are now a number of specialized trusts that can be used to achieve a wide range of estate planning goals. All trusts, however, are created using the same five elements, including:
- Settlor – this is the person who creates the trusts and may also be referred to as the “Maker” or “Grantor” of the trust.
- Trustee – the Trustee is appointed by the Settlor and is in charge of managing and investing trust assets as well as administering the trust using the trust terms.
- Beneficiary – every trust must have at least one beneficiary to receive the benefits of the trust; although, a trust may have numerous beneficiaries.
- Terms – the Settlor creates the terms that govern the administration of the trust. Terms may be almost anything as long as they are not illegal, impossible, or unconscionable.
- Assets – a trust requires funding. Funding may include any type of assets, including cash, securities, real or personal property, or life insurance proceeds.
Terminating a Living Trust
The manner in which a trust terminates will depend, to some extent, on the type of trust in question. If the trust is a revocable living trust or a testamentary trust, the Settlor has the authority to terminate the trust at any time and for any reason. If, however, the trust is an irrevocable living trust the Settlor does not have the authority to terminate the trust after it is established.
The terms of a trust may also dictate when the trust terminates by including a specific date on which the trust is to terminate or by including a triggering event that causes the trust to terminate. By way of illustration, the Settlor might include a term requiring the trust to terminate upon the marriage of the trust’s only beneficiary or upon the youngest beneficiary reaching a specific age. Another way a trust might terminate is if the Settlor gave the Trustee the discretion to terminate the trust when the trust purpose has been fulfilled or when the trust assets diminish to a point at which the trust is no longer able to fulfill the trust purpose.
Judicial Termination of a Trust
If the trust terms are silent or vague with regard to a Trustee’s authority to terminate the trust it may be necessary to petition a court to have the trust terminated. In the State of Florida, §736.0414 of the Florida Trust Code governs judicial modification or termination of trusts, reading in pertinent part as follows:
(1) After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property having a total value less than $50,000 may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.
(2) Upon application of a trustee or any qualified beneficiary, the court may modify or terminate a trust or remove the trustee and appoint a different trustee if the court determines that the value of the trust property is insufficient to justify the cost of administration.
(3) Upon termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust. The trustee may enter into agreements or make such other provisions that the trustee deems necessary or appropriate to protect the interests of the beneficiaries and the trustee and to carry out the intent and purposes of the trust.
(4) The existence of a spendthrift provision in the trust does not make this section inapplicable unless the trust instrument expressly provides that the trustee may not terminate the trust pursuant to this section.
(5) This section does not apply to an easement for conservation or preservation.
Contact Port St. Lucie and Vero Beach Living Trust Attorneys
To learn more, please download our FREE solid estate plan checklist. If you have additional questions or concerns about how a living trust terminates, please contact the experienced Port St. Lucie and Vero Beach living trust attorneys at Kulas & Crawford by calling (772) 398-0720 to schedule an appointment.