How Does a Trust End?

What Is a Trust?

A trust is an arrangement for your property consisting of an original owner (also known as a grantor, trustor, or settlor) of a property (i.e. bank accounts, investments, personal property, real estate), and a transfer that handles current or future ownership and management of property (also known as the trust assets) through the use of an estate planning document called a “trust instrument” to a “trustee” (a person chosen by the grantor or the grantor itself in the case of a revocable living trust).

A trust can be created while the grantor is alive or through the use of a testamentary trust after they have died.

Proper administration of the trust is assigned to the trustee who has a fiduciary duty to the grantor and for the benefit of the named beneficiaries of the trust. That fiduciary duty begins as soon as the trust is established and ends when the trust ends. If you have additional questions about trusts, speak with a knowledgeable Orange County trust attorney.

How Does a Trust End?

There are a few ways a trust may end and it all depends on the kind of trust it is and the terms of the trust document.

Revocable Trusts

With a revocable trust, the grantor can choose to revoke the trust and regain and retain ownership of the assets at any time. This type of trust exists during the lifetime of the grantor, it is usually managed by the grantor or someone they designate and it does not have the same tax sheltering benefits as other types of trusts.

Irrevocable Trusts

The most common time to end an irrevocable trust is soon after the death of the grantor, when all of the assets are distributed by the trustee to the heirs. Alternatively, an end date or a condition that must be met before the assets can be distributed can also be specified by the grantor. For example, the grantor can say that a grandchild will receive money from their trust once the grandchild turns 18.

Special Needs Trusts

A special needs trust services an incapacitated family member that may need financial help for an extended length of time. The special needs trust remains in effect throughout the person’s lifetime. Further, under federal and state law, a trust can remain open for up to 21 years after the death of anyone living at the time the trust was created. As the trustee is often older than the beneficiary, typically, a successor trustee is named to continue to oversee a trust. A trust company to provide oversight can be helpful for this scenario.

Charitable Trusts

A charitable trust does not have an end date, unless the terms of the trust create an end date. For example, it could specify that a certain percentage of its assets be distributed each year until all assets are gone. Other than such specific terms, charitable trusts continue in perpetuity.

Mismanagement of Trusts

A trust could also end if the assets that make up the trust property are exhausted by distribution but also when the assets are exhausted due to market conditions or mismanagement of the trust.

This can happen if financial mismanagement occurs by the trustee(s), and in such cases, the trustee could find themselves facing probate litigation.

As an example, a trustee has the duty to balance risks with the trust and failing to invest assets could itself be a violation of fiduciary duty because it would not preserve the assets of the estate by failing to earn interest. Now, if most of the estate is invested in the stock market and earning interest, and then the stock market crashes, that is likely not the fault of the trustee as assets of a trust are not immune to market conditions and the overall economy. Another example would be if the trust asset being the family home catches fire and everything in it is destroyed, the trust may end.

What Happens When a Trust Ends?

A trust ends when assets are distributed. Once a trust ends by way of the distribution of property, the deceased usually includes instructions in the trust instrument regarding how the assets are to be distributed.

When there are no instructions, the trustee and the beneficiaries must both decide a way of splitting the assets fairly. In this scenario, a probate lawyer might be useful if you have questions about your inheritance rights.

July 26, 2022

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