Dissolving an Estate Trust

by Bob Haring, Demand Media

    A trust is created to dispose of assets in an estate without lengthy and expensive court proceedings and to avoid estate taxes. A grantor creates a trust and transfers his assets to it, under control of a trustee. There are two basic types: revocable and irrevocable. A revocable -- or living -- trust may be changed by its grantor at any time and in any way during his lifetime. He can even dissolve it. An irrevocable trust may not be changed or modified, even by its grantor. Both trusts become irrevocable estate trusts at the death of the grantor.

    Dissolution

    An estate trust normally is not dissolved until all the assets have been distributed. That can take many years, depending on how the trust was set up. Trusts are created under state laws and the grantor may write specific rules into the trust agreement. Assets may be disbursed immediately or held for years, under control of the trustee.

    Estate Trusts May Continue

    Some estate trusts provide for gradual disbursement of assets or for continued operation of a business, under the trustee, with the income distributed to the beneficiaries. Some trusts continue for decades and may even be passed through generations of trustees, who normally are family members or close associates of the trust grantor.

    Trustee Dissolves the Trust

    Once a trust's assets are disposed of, the trustee may dissolve the trust. The way that is carried out will depend on the terms of the trust and the state laws which govern it, but it will be directed by the trustee. Trust beneficiaries may be required to agree to dissolution terms and disposition of final assets.

    Court-Ordered Dissolution

    In some cases, a court order may be obtained to dissolve an estate trust. This happens most often if all the beneficiaries cannot be located or will not agree to termination of the trust. A court may order a trust dissolved if it finds there is no reason for it to continue to exist.

    Other Dissolutions

    An estate trust still holding assets may be dissolved in most cases if the trustee and all beneficiaries agree to terminate it. At that point, remaining assets would be distributed and all taxes would be paid. State termination laws vary, but the Internal Revenue Service treats dissolution of a trust like the closing of any business and requires the filing of an income tax return to close the trust business.

    About the Author

    Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.