How to Break a Trust Fund

An overly generous trust fund can give beneficiaries an unearned sense of entitlement.

An overly generous trust fund can give beneficiaries an unearned sense of entitlement.

A trust fund is a pool of assets administered by a trustee for the benefit of the recipient, often a minor child. Often the trustee grants the beneficiary a yearly income and may pay certain other expenses directly from the trust. In many cases, the terms of the trust require that when the beneficiary reaches a certain age, the trust is dissolved and the assets are distributed to the beneficiary. Disputes between the trustee and the beneficiary do arise. In some cases the beneficiary may sue the trustee to break the trust.

Voluntary and Involuntary Dissolution

Read the trust deed. The deed may spell out terms and conditions that allow the trustee to dissolve the trust or require the trustee to dissolve the trust at the beneficiary's request.

Determining the Applicable Law

Research your state's laws on trust dissolution. In some states, if the beneficiary -- or all beneficiaries when there is more than one -- requests dissolution of the trust, the trustee must grant it. In most cases, however, the beneficiary must be of legal age. In other states, the consent of both the trustee and the beneficiary is required. Some states also require a court order.

Going to Court

If necessary, petition the court for an order dissolving the trust. Courts are generally reluctant to break a trust when the grantor is deceased unless there are exceptional reasons for doing so. These might include the incompetence of the trustee or a substantiated allegation of the trustee's misdeeds, such as misappropriation of funds or fraud. If this is proved, the court will issue an order dissolving the trust. Depending upon the age and mental condition of the beneficiary, the court will then order the assets distributed to the beneficiary or will order the creation of a new trust with the same beneficiary and conditions of the original trust deed but with a different trustee.

Alternatives to Breaking a Trust

Consider alternatives to breaking a trust. If the trustee's competence or honesty is not the issue, you may be able to get at least partial satisfaction by convincing the trustee to modify the trust's terms. As beneficiaries grow to maturity, control issues can arise. The trustee may be accustomed to micromanaging the disbursement of the money and might need to be convinced that a less rigorous approach will be better for you both. If in the past you haven't handled your money to the trustee's satisfaction, you may have to demonstrate that you have matured. If you can achieve most of your aims without going to court, you save time and money and avoid stress. If the current trust has unfavorable tax consequences, the trustee may agree to break that trust and set up a new one with modified terms that reduce or eliminate negative tax consequences.

About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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