People create trusts for many reasons. Sometimes, trusts are part of estate planning efforts to protect the legacy of a family asset or are used to control the distribution of assets to children in an attempt to avoid large lump-sum payments. Some people utilize trusts for tax planning purposes, for privacy reasons or as a tool to avoid probate.
Time passes, circumstances change, and a trust may no longer be needed to manage assets while you are living or after you pass. There are a few ways you can terminate or revoke a trust.
Not funding the trust
You may have heard the saying that a “trust must be funded.” This means that assets must be in the trust for it to have a life and to fulfill its purpose. To fund a trust, you put assets in the name of the trust, such as real property, investment accounts or assigned tangible property to the trust, such as for gun trusts. If you never put any assets in the trust, there won’t be any assets for a trust to manage. Thus, it has no effect.
A trust may be revoked through a written document. The trust must be accurately named in the revocation, the provisions of the trust that allow revocation or that state the powers of the settlors/trustors/trustees must be identified, and the document must be signed by those having the authority to do so. Then, of course, any property named in the trust must be taken out of the trust, and the ownership must be changed. The trust has been revoked, so this isn’t absolutely necessary, but transferring that asset will be messy if the ownership change isn’t well documented.
Joint trusts and divorce
Some couples form a trust together in a joint trust. These trusts have two people as settlors/trustors and are usually the trustees in the case of a living revocable trust.
What happens if these people divorce? The assets in a trust are usually marital property and are part of the separation discussions. Who takes specific assets from the divorce are discussed and definitively decided through the divorce process. The changing of title of assets in the trust must be legally changed from the trust to the individual who is taking the asset from the relationship. This will remove any asset formerly “in the trust” out of the trust. If all the assets owned by the trust are transferred out of the trust, the trust is essentially “defunded.” The couple should specifically revoke the trust through a written document, as mentioned above, to clearly and cleanly terminate the trust.
As you can see, there are many details involved in establishing and revoking trusts, as well as many options to consider that an attorney, like a trust lawyer in Belgrade, MT, from a firm such as Silverman Law Office, PLLC, can explain.