Small trust termination

Small trust termination

How small (market value of the assets) does a trust have to get before it can be terminated?


Trusts are legal contracts. You have to start by reading the contract and seeing what it says. A trust can terminate for many reasons; size of asset may be one. If the trust agreement states that if the assets fall below a certain threshold amount the trustee can distribute the assets then you can do so and have the trust effectively ended. Many trusts don't establish such a threshold so you should review the entire trust for other possible options. In some cases a trust can be terminated if it is deemed uneconomical to continue by the trustee. If the trust in question has such a provision, that may be your ticket to terminating it. Many trusts include broad distribution clauses. It might just be possible to distribute the remaining trust balance, thus effectively ending the trust. In all cases, however, it is advisable to have an estate planner review the document and advise you of other issues to address. There may be income tax consequences to the termination. Capital gains or other income may flow out. There may be some flexibility as to which tax year the trust should end in. This might be advisable to coordinate with the income tax consequences of the beneficiaries. State laws differ dramatically and should always be considered. Do you really want to terminate the trust? If a key beneficiary is in the midst of a lawsuit, nervous breakdown or other problem, is that really advisable? Often there are some or many ancillary issues which can have a significant impact. Let's say you get this far and the trust has one or more provisions to seemingly permit distribution and the ancillary sequences seem to have been addressed by an attorney for the trust. Do you play Nike and "Just Do it!"? I don't think so. Most trusts list contingent beneficiaries. These are the folks who get the trust assets if the primary beneficiaries die before the trust is distributed. What about their rights? You might want (if you're the trustee and don't want to be sued) a consent or settlement agreement signed by everyone. You might want a court approval (the safest approach in many cases). You might need to have a guardian appointed by the court to address the interests of a minor or incompetent beneficiary. Lot's of issues. The Complete Book of Trusts (3rd Ed.) John Wiley & Sons, Inc. has a chapter on trust termination.

Our Consumer Webcasts and Blogs

Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.

Ad Space