One of the biggest benefits of a revocable family trust is its flexibility. You can generally freely take assets in and out of it for as long as you're alive. By definition, the trust can also be revoked, or terminated, whenever you want, until you pass away and the successor trustee takes over. Typically, the process just requires a little bit of paperwork.
Terminating in Life
When you're the trustee, terminating your trust is a relatively simple process with two parts. First, you need to empty out your trust by transferring any property that you put into the trust back to yourself or by transferring the property to whomever else you want to have own that property. Generally, you can do this through the same process that you used to put the property in the trust. You also have to formally revoke your trust. Typically, you do this with a trust revocation document that you sign, have notarized and store with your trust document. If your trust specifies a different procedure for revocation, you will have to follow that procedure instead.
Once you die, terminating the trust becomes the responsibility of your successor trustee. The first step in the process is for the trustee to have the property in the trust retitled into his name so that he can work with it. Once he does that, he can then follow the instructions of the trust as to how to distribute the property. If the trust gets emptied out, it can then be revoked. Otherwise, it will have to stay open until its original terms are fulfilled.
Reasons to Terminate
While one obvious reason to revoke a trust is that the original trustee has died and all of the trust's assets are gone, that's not the only one. Generally, you would revoke a trust after a major change in your family structure, like a marriage or divorce that requires you to change the fundamental ownership and nature of the trust. Sometimes, you will also revoke a trust if you need to make changes that are so significant that simply revising an existing one might lead to confusion.
Alternatives to Termination
If all that you want to do is to make some changes inside your trust, there's no need to revoke it. For instance, if you want to put a mortgage on a piece of property in the trust, but your lender won't lend to the trust, you can simply deed the property back to yourself and leave the trust in place. You can also modify the trust to add or delete beneficiaries, change your successor trustee or do just about anything else.
While the IRS recognizes some trusts for tax purposes, trusts are usually created under state law. As such, the specific procedures in your state may vary from what appears here. A trust or estate attorney that is familiar with your state's particular laws may be a useful resource to you as you formulate and execute your strategy with your revocable family trust.
- Jupiterimages/Photos.com/Getty Images
- Do I Need a Trust if I Am Married With No Kids?
- Can I Put Jointly Held Property in a Living Trust?
- What Is a Reversible Living Trust?
- Does a Power of Attorney Have the Right to Change a Living Trust?
- What Is the Difference Between Putting a House in Joint Tenancy and a Trust?
- Does a Minor Inherit Money After a Parent's Death?
- How to Amend the Trustee on a Revocable Living Trust
- What Is the Difference Between a Living Trust and an Estate Account?