Did you set up a trust but don’t know how to dissolve it as you no longer need it? If that is the case, then read this article to know more about the procedure of dissolving a trust.
Make Lasting Legacy – Learn Methods for Dissolving a Trust
What Is a Trust?
A trust is a legal arrangement in which the owner of the property (grantor) authorizes another person (trustee) to hold and manage the property for the benefit of another (beneficiary). Grantors set up a trust to ensure that their children or other designated beneficiaries receive the property such as money, stocks, bonds, or a business when and how they want according to the trust.
There are two main types of trusts: revocable or irrevocable. The type of trust depends on the provisions included when you set it up. A revocable trust allows the grantor to have control over the trust and its properties. In contrast, an irrevocable trust provides more tax benefits and asset protection. Still, it does not allow the grantor to revoke or amend the trust.
To set up a trust for you, an estate attorney may charge at least a few thousand dollars. Depending on how complicated your trust is, the cost of a trust might rise much higher. In general, an irrevocable trust will be more expensive than a simple revocable trust.
Why Create a Trust?
A trust serves a variety of purposes. Depending on the type of your trust, you might receive different benefits. Some of the primary purposes include:
- Remaining eligible for government programs, such as Medicaid
- Reducing taxes, including income tax, capital gains tax, or estate tax
- Protecting assets from creditors
- Allowing you to avoid probate and protect the details from being disclosed
- Allowing your children to inherit the property in installments
Probate can be expensive, and probate records are available to the public, whereas distribution through a trust is confidential.
Why Dissolve a Trust?
A trust usually has an expiry date, also known as a vesting date. There are, however, ways to terminate the trust before the vesting date. This process is called dissolving a trust. You might want to dissolve a trust ahead of schedule when:
- You set up a family trust but then divorce
- You have fulfilled the purposes of the trust
- You can no longer maintain the management fees
- The court orders that the trust be dissolved
The process of closing a trust varies from the type of trust that you set up. Below are the steps for how to dissolve a trust.
How to Dissolve a Revocable Trust
A grantor has the right to control a revocable trust and its properties. To dissolve a revocable trust, you have to follow these steps:
Remove Assets From the Trust
The first thing you need to do is return the trust assets to your name. If you need to defund the trust, you must go to the bank and change account ownership from your trust’s name to your name. Also, make sure to change the names on deeds, titles, and other ownership documents for other trust assets too.
Sign and Notarize a Trust Dissolution Form
Next, you need a trust dissolution form, which you can find on the internet for free, or you can contact an online estate planning service to create one for you. As you already have a trust dissolution form, sign and notarize it. Have your trust dissolution form witnessed if necessary. After you’ve notarized the paperwork, notify your trustee and provide them with a copy, so they know their responsibilities are no longer required.
How to Dissolve an Irrevocable Trust
Can an irrevocable trust be dissolved? The answer is yes. In an irrevocable trust, the grantor is generally not allowed to revoke or amend the trust. However, under some circumstances, an irrevocable trust might be dissolved. The process of dissolving an irrevocable trust, as a result, might be more complicated than dissolving a simple revocable trust. Here are the things you need to do:
Get Consent From All Beneficiaries
A grantor can terminate an irrevocable trust with the approval of all trust beneficiaries. However, this could be especially difficult depending on preconditions to the beneficiaries. To dissolve an irrevocable trust, the beneficiaries must:
- Be at least 18 years old
- Agree to close the trust
The beneficiaries must together agree to dissolve the trust. The trust property must be directed to the beneficiaries. The trust after that must be documented as terminated.
Get Court Approval
The last way to get your irrevocable trust dissolved is by asking the court to grant you permission. Suppose the court determines that a trust is a sham set up to avoid paying taxes or that a trust has become impossible to maintain. In that case, you can dissolve an irrevocable trust by court order.
The grantor and the beneficiaries might get tax consequences for terminating an irrevocable trust. Therefore, you should speak with a tax or estate attorney before attempting to revoke it.
Now you have all the information for dissolving a trust. Creating a trust can be an excellent way to leave a lasting legacy to future generations. However, there are times when you need to close a trust. Knowing how to control your property means you can make a considerable contribution to your life and your children’s welfare.
If you have questions about dissolving a trust or any of the details discussed here, connect with us and learn more.
At Wiggins Auctioneers, we provide effective rapid marketing campaigns thanks to our significant experience and dedicated staff. You can build a professional relationship with us based on trust and open communication. Your auction will be successful and operate smoothly in every way.
For a free, private consultation, contact us now! This might be the first step in avoiding an expensive and prolonged property holding term.