How to Terminate a Trust

Even irrevocable trusts can be modified or terminated in some situations. Sometimes the trust has served its purpose and no longer has sufficient assets to continue operating. Other times, changed circumstances require the trust to be terminated or converted into a new type of trust.

North Carolina law provides for several different methods of terminating trusts, including the following:

Termination by Trustee

If a trust has less than $50,000 in assets, the trustee may terminate the trust without getting court approval. These trusts may be considered uneconomical because the cost of administering the trust is too high in proportion to the trust assets. The trustee will be required to give notice to beneficiaries and distribute the trust assets in a manner consistent with the purposes of the trust.

Termination With Consent of Beneficiaries

An irrevocable trust can also be terminated with the consent of the settlor and all beneficiaries. The settlor is the person who created the trust, and the beneficiaries are the people who benefit from the trust assets.

If the beneficiaries want to modify or terminate the trust without the settlor’s approval, they will have to go to court and present their case. A judge will have to weight their interest against the purposes of the trust and determine which side should prevail. The trust assets would be distributed as agreed to by the beneficiaries.

Termination by the Court

The court has the power to modify or terminate a trust if unanticipated circumstances require doing so. The court will only make this type of change if it furthers the purpose of the trust.

For example, consider a grandfather who left a trust to pay for their young grandson’s college education. After the grandfather passes away, it’s determined that the grandson is disabled and will not attend college. A court could decide to convert the trust into a special needs trust because it will further the trust’s original purpose of providing for the grandson.

A court can also modify a trust, even if has assets of over $50,000 if it is impractical or wasteful. If the costs of the trust’s administration are almost as much as the income the trust creates, it may be a better financial decision to simply terminate the trust. The court would then have the power to determine how the trust assets should be distributed.

King Law handles estate planning matters in North and South Carolina, including wills, trusts, and estate administration. Follow us on Facebook for more information and updates on legal issues.

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