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How Do you Dissolve a Trust in Naples FL?

living trust contract

People create trusts for a range of reasons, but their basic purpose is primarily to hold assets or property outside of an estate. A trust exists to serve the needs of the beneficiaries until it is no longer needed. But if the trust isn’t serving those needs, or it wasn’t set up properly, it may be time to amend it or simply dissolve it and start over.

There are two types: revocable and irrevocable. Despite its name, an irrevocable trust can be terminated but it’s not easy.

The Revocable Trust

By its very nature, the revocable trust can be dissolved without much trouble if the grantor—the person who created the trust—is alive. Once the grantor passes, then it becomes an irrevocable trust.

The grantor maintains ownership of the trust and its assets and can make changes at any time, including dissolving the trust entirely. He or she can update the trust as appropriate, but there may come a day when the trust no longer serves its purpose.

To dissolve the revocable trust, the grantor must:

1. Review the trust document for a clause that describes the dissolution
2. Make the decision public and provide evidence for dissolution
3. Communicate the dissolution by letter with everyone involved, beginning with trustees
4. Transfer out any assets or property, called “decanting”
5. File a trust revocation document to dissolve the trust, which must be signed and dated in front of a notary

Note that since the trustor retains ownership of the property and assets in the trust, it is part of the taxable estate.

Terminating An Irrevocable Trust

Terminating an irrevocable trust that is intended to be in place for many years is more difficult. If the trust was created after January 1, 2001, can be terminated without going to court if the trustee and all beneficiaries agree unanimously. The petition can be filed by either a qualified beneficiary or a trustee. The trust can be terminated if:

• The purpose of the trust has been fulfilled
• There is no longer any reason to continue the trust
• Compliance with the terms of the trust would defeat the trust’s purpose
• Working to fulfill the purpose of the trust has become wasteful, impractical, illegal, or otherwise impossible

A trustee can also terminate a trust on the grounds of:

• Uneconomic trust, where the trust is worth less than $50,000, and the value of the assets isn’t worth the expense
• A trust was created fraudulently, under duress, by mistake, or with undue influence
• There has been a “merger of interests,” where two or more trusts have become consolidated

Termination will require the agreement of all trustees and qualified beneficiaries for those under $50,000. An estate planning attorney will then prepare a Plan of Distribution and Trust Termination Plan, which all parties will sign.

For all other estates, termination requires filing a petition with the court and receiving approval from the court before the trust can be closed.
In either case, it’s best to work with an attorney who understands trusts and the parts they play in estate planning. If you need help with trusts and other estate plan concerns, contact Naples Estate Planning Attorney Jim Nici at (239) 449-6150 today. Let us use our experience and expertise to help you make the best decisions to secure your assets.

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