A living trust is not far behind a Last Will and Testament in terms of popularity as an estate planning tool. If you are contemplating the inclusion of a living trust into your estate plan, or you find yourself to be the beneficiary of a living trust, you may have a number of questions about how the trust works. For example, you may want to know how the trust terminates. The Lincolnshire living trust attorneys at Hedeker Law, Ltd. explain when and how a living trust terminates.
What Is a Living Trust?
The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
How and When Does a Living Trust Terminate?
The manner in which a trust terminates will depend, to some extent, on the type of trust in question. If the trust is a revocable living trust or a testamentary trust, the Settlor has the authority to terminate the trust at any time and for any reason. If, however, the trust is an irrevocable living trust the Settlor does not have the authority to terminate the trust after it is established.
The terms of a trust may also dictate when the trust terminates by including a specific date on which the trust is to terminate or by including a triggering event that causes the trust to terminate. By way of illustration, the Settlor might include a term requiring the trust to terminate upon the marriage of the trust’s only beneficiary or upon the youngest beneficiary reaching a specific age. Another way a trust might terminate is if the Settlor gave the Trustee the discretion to terminate the trust when the trust purpose has been fulfilled or when the trust assets diminish to a point at which the trust is no longer able to fulfill the trust purpose.
Terminating an Irrevocable Living Trust
If the trust is an irrevocable living trust, terminating the trust may be more complicated. Of course, if the trust has a built-in termination date or a provision gives the Trustee the authority to terminate the trust, those are options. If, however, neither of those is the case, it may be necessary to turn to a court to terminate the trust. The same is true if the trust does include a provision that sets a termination date but you wish to terminate the trust prior to that date. A court always has the authority to modify or terminate a trust; however, you will need to provide the court with a compelling reason to do so. Common reasons why a judge would approve the termination of an irrevocable living trust (or any other type of trust ) include things such as the depletion of trust assets or that the trust purpose has become impossible to fulfill.
Finally, the State of Illinois enacted new legislation recently that established the Illinois Trust Code which goes into effect on January 1, 2020. If you have an existing trust, make sure you consult with an experienced trust attorney to see if the new code impacts your trust in any way.
Contact a Lincolnshire Trust Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating or terminating a trust in Illinois, contact an experienced Lincolnshire trust attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.