Living Trust is an essential document of Estate Planning. If you are planning to create a Trust you must understand its basics like how a trust is created, when a Living Trust end, etc. In this article, we will be primarily understanding how a Living Trust ends.
Meaning of Living Trust
Living Trusts are documents of Estate Planning, created by a person known as a “Grantor/Initial Trustee” who puts property into a Trust and enjoys the benefits of it during their lifetime. Upon the death of the person, the property is managed by another person appointed by the Grantor called a “Successor Trustee”.
The people who inherit the Trust property upon the death of the Grantor are the “Beneficiaries”.
When does a Living Trust end
Usually, a Revocable Living Trust takes 6-12 months to end after the death of the Grantor. This duration is not fixed and depends upon the terms of the Trust. A Trust with limited assets and beneficiaries will probably take less time to end as compared to a Trust with huge assets. “Declaration of the Trust”(a document that specifies the terms of the Trust) plays an essential role in determining the time taken to end a Trust.
Termination/End of a Living Trust takes place under the following circumstances:
- Upon fulfillment of the purpose of Trust
- Upon conditions specified in the terms of the Trust
- Upon mismanagement of Trust
Let us understand these circumstances in detail.
Termination of Living Trust upon the fulfillment of its purpose
A Living Trust ends when the purpose for which it was created is fulfilled. It also depends upon the type of Trust created and upon the terms of the Trust.
Revocable Trusts
Revocable Living Trusts are the most common type of Living Trusts which people usually make because of their Flexibility. The grantor is free to alter or amend the provisions of this Trust anytime before death.
- A Revocable Living Trust may be terminated anytime by the Grantor before he dies for any reason or once the assets of the Trust are distributed among the beneficiaries.
Irrevocable Trusts
Irrevocable Living Trusts are Trusts whose provisions cannot be changed easily. It is a complicated process to change the provisions of these Trusts as it requires approval from beneficiaries or the court.
- Irrevocable Living Trusts cannot be terminated once they are created unless the assets are distributed among the beneficiaries.
Read this article to know the difference between Revocable and Irrevocable Living Trusts.
Termination of Living Trust based on terms of Trust
Terms of the Trust may also specify the time when the Living Trust will be terminated. The grantor may specify a particular date or event on which the Trust may terminate. For instance,
the Grantor may specify that the trust will terminate:
- Upon reaching a specific age by the beneficiary
- Upon the marriage of the beneficiary
Termination due to Mismanagement or Poor Financial Conditions
When the trust assets are exhausted, the Trust may come to an end. This can be caused due to the financial mismanagement of assets by the trustee.
It is not necessary that this mismanagement is caused by the fault of the trustee. In case the estate is invested in the stock market for earning interest and the market crashes suddenly; it is not the trustee’s fault.
There may be circumstances where the whole of the estate gets destroyed. For example, if a house that is held in a trust catches fire and everything inside it is destroyed, the Trust will come to an end.
