Can Revocable Trusts Be Ended?
- The trust document transfers ownership of assets to someone you designate, called a trustee, who manages those assets for the benefit of beneficiaries you name. The person setting up the trust is called the grantor or settlor. A testamentary trust is set up as part of your will and begins at your death; it is irrevocable unless you change your will. A living, or “inter vivo,” trust is one you create while you are alive. You can serve as the trustee, naming another person or institution as co-trustee or successor trustee in case you become incapable of managing the trust.
- In addition to instructions for distributing assets upon the grantor’s death — which avoids their probate — a revocable living trust provides direction for the asset management if you become incapacitated. This avoids having to petition a court to appoint a guardian or conservator to manage your finances. Because the trustee named by a revocable trust has actual ownership of the trust’s assets, all third parties — such as banks and stockbrokers — must carry out directions from the trustee. Third-party entities may refuse to accept instructions from an agent armed only with a power of attorney, especially if it is several years old.
- A revocable trust can be changed or terminated by the person setting up the trust at any time, for any reason, without any other person’s consent as long as the settlor is mentally competent when doing so. If the trust has two or more grantors, they sign a brief written agreement to revoke it. When setting up the trust, include the specific right to amend it. State laws vary, so check into the required legal wording to permit or prohibit amending and/or terminating the trust. Include information on the specific methods to be used to accomplish these actions.
- Unless the grantor terminates it, a living trust ends its existence when all its assets have been distributed as directed. Once the grantor dies, the trust becomes irrevocable, meaning its terms must be carried out. If the trust belongs to a married couple, the entire trust may pass to the survivor after the first spouse dies unless tax concerns suggest the assets should be divided between the deceased spouse and the surviving one. Other beneficiaries, such as children, may receive distributions after each death or may have to wait until the last co-settlor dies.