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The End Of A Trust
Trust instruments are complicated legal documents that are put in place to safeguard property until that property is distributed to beneficiaries. The trustee’s fiduciary duty involves the administration, liquidation, and disbursement of funds to the beneficiaries. The grantor usually names trustees while the trust instrument is being drawn. The trustee fulfills the grantors’ wishes by following the trust instructions to the letter.
Dissolving a Trust and Trustee Powers
There are two primary types of Trust:
- Revocable Trust. The grantor, who usually serves as trustee, can add to the Trust and take it at will. The grantor also can dissolve the Trust completely. These trusts are useful for avoiding probate following the death of the grantor.
- Irrevocable Trust. Once the grantor establishes an irrevocable trust, they cannot change the trust instrument. The grantor surrenders their property to the Trust. The Trust can only be changed by court order in case of a contest. Irrevocable trusts provide asset protection. They can also help the beneficiaries avoid estate taxes.
Dissolving A Trust: Tax Implications
Taxes are paid annually during the trust instrument’s lifetime whenever the Trust earns $600 or more. When the time comes for the final administration and distribution, the taxes should be paid to date. The trustee pays any taxes still due during the final process. By the time the trustee is dissolving, Trust tax implications are at a minimum.
How To Dissolve A Trust After Death
Following the death of the grantor, the trustee takes several trust administration steps. The trustee vows to follow the Trust closely. The trustee cannot gain personal profits from any of the administrative actions. The trust administration steps include:
- The trustee signs the affidavit of acceptance of the appointment of trust form.
- The trustee notifies the beneficiaries that they will be inheriting. This written notification marks the beginning of a 120-day window for filing contest petitions with the courts. The trustee gives each beneficiary a copy of the final Trust, including all amendments.
- The trustee sets up a trust account for all monies, including those from existing grantor bank accounts. At this time, the trustee also files for a tax number specific to the Trust.
- The trustee inventories all assets of the Trust. This step includes consulting experts on valuation, legal counsel for guidance, and realtors to sell any real property.
- The trustee liquidates assets. The trustee is mindful of the beneficiaries and strives to obtain fair proceeds.
- The trustee identifies all creditors and pays off all debts.
- The trustee presents an accounting report to the courts. The trustee shares this report with the beneficiaries.
- The trustee distributes funds to the beneficiaries.
- The trustee closes out the Trust.
Can A Successor Trustee Revoke a Revocable Trust?
The short answer is no. The grantor is the only one who can revoke a revocable trust. A revocable trust is similar to how the grantor manages their bank account before drafting the trust instrument. The grantor may act as a trustee while still alive, but any revocation of Trust should come from their role as the grantor. A grantor can amend or revoke a revocable trust at their discretion. The grantor should always call their trust lawyer before amending a Trust to complete all required paperwork legally.
Potential Legal Challenges To Revocation Of Trust
Revocation of Trust, especially when the grantor is elderly, can raise warning flags to family members. Suppose the changes to the Trust are excessive, such as disinheriting part of the family, closing down the Trust, or paying a substantial amount of money to an outsider. In that case, those of legal standing are within their right to contest the revocation petition. Contesting the revocation is also appropriate if the trustee appears to be in breach of duty.
Contestable charges include:
- Undue influence on the grantor.
- The grantor lacks mental competency when they make the changes.
- Incomplete documentation if signatures are missing.
- Misappropriation of funds by the trustee.
- Self-dealing by the trustee.
- Dereliction of fiduciary duty by the trustee
When Does An Irrevocable Trust End?
An irrevocable trust ends once the trustee fulfills their fiduciary duty to the Trust. A trustee ends an irrevocable trust once they complete all trust administration steps. Trustees make sure that they pay all creditors and distribute the rest of the funds to the beneficiaries. When the trustee has paid all the assets, the Trust ends.
Seeking Legal Counsel
You should seek advice from a trust attorney at every step of the trust process. The grantor needs legal guidance when initially creating the Trust. The trustee should have a trust lawyer to guide them through how to dissolve a trust after the grantor’s death. Your trust lawyer can help to identify any dissolving trust tax implications. A trust lawyer can help you understand can a trustee revoke a revocable trust. A trust attorney will help the trustee as an intermediary of the courts to clarify when an irrevocable trust ends. Call one of our experienced trust attorneys today for further information on trust administration.
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Are you looking for a trust litigation lawyer in the Orange County area? When it comes to the practice of Trust and estates, it can be difficult finding an attorney that’s experienced in handling your specific issues.
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What are some reasons a family trust can be contested?
A Family Trust, which includes a revocable and irrevocable Trusts are contestable. When the Successor Trustee has taken over, there is an allotted time that beneficiaries have to contest the Trust. Make sure you are within your time limits to fight the Trust. A Trust Attorney can help you, at a minimum, understand your next few steps. It’s highly advisable to be “reasonable” throughout the process to ensure you stay on the right side of the courts.
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