Creating an estate plan typically requires you one to contemplate numerous inter-related goals and objectives at the same time. To achieve all those objectives, you may need to incorporate numerous estate planning tools and strategies into your estate plan. One of the most popular of those estate planning tools is a living trust. Once your living trust is in place, however, how and when does it terminate? To help you better understand how a living trust works, the Carmel living trust attorneys at Frank & Kraft explain the various ways in which a living trust might terminate.
Living Trust Basics
Before discussing how to terminate a trust, it helps to learn some trust basics. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
Terminating a Living Trust
A living trust may terminate several different ways and/or under several different scenarios. Whether or not the Settlor can terminate the trust whenever he/she wants depends on whether the trust is revocable or irrevocable. If the trust is a revocable living trust, the Settlor can terminate it any time and without needing to provide an explanation. If, however, the trust is an irrevocable living trust the Settlor cannot ever terminate the trust once it is activated.
The Settlor may include a term within the trust agreement itself that provides a specific date on which the trust is to terminate. Similarly, the Settlor might include a triggering event in the trust agreement that causes the trust to terminate. For example, 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. The Settlor may also give 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. If the Trustee was not given the ability to terminate the trust when the assets diminish, Indiana law allows a judge to terminate the trust for that reason under Indiana Code §30-4-3-24.5 which states, in pertinent part, as follows:
(b) This subsection applies to a trust consisting of trust property having a total value of less than seventy-five thousand dollars ($75,000). Unless the terms of the trust provide otherwise, the trustee may terminate the trust:
(1) if the trustee concludes the value of the trust property is insufficient to justify the cost of administration; and
(2) after providing notice of the trust termination to qualified beneficiaries.
To terminate a living trust using §30-4-3-24.5 you must first petition the appropriate court and then convince the court that terminating the trust is the best option.
Contact Carmel Living Trust Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating or terminating a living trust, contact the experienced Carmel living trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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