When Does a Trust Terminate?

June 6, 2014

A trust is a great way to plan for future management of your property, in the event you become unable to do so yourself.  Like most things, the terms of the trust must come to an end at some point.  When that happens depends on the circumstances.
The definition of a trust
A trust is simply a special type of arrangement where the original owner of the property (known as the “trustor”) places that property into a trust, while designating someone else (known as the “trustee”) to take care of it, for the benefit of another person (known as the “beneficiary”).  The instructions for using the property or taking care of it, are set out in the written document, called the "trust instrument."
How a trust can be terminated
The most common way for a trust to end is upon the exhaustion of the trust property.  For instance, if the trust property is cash or stocks, then the trust ends when all of the funds are paid to the beneficiary.  If, on the other hand, the property was tangible like a house or car, then the trust will end when that property is destroyed.
The other most obvious way a trust ends is when the document itself specifies.  The terms of the trust can either designate an ending date or a specific condition upon which the trust will end.  Common examples are trusts that end when a minor reaches the age of 21 or graduates from college.
Terms of a testamentary trust
Testamentary trusts customarily state when the trust will end, such as when the beneficiary dies or completes his or her education, as mentioned above. In some case, when the value of the trust falls below a minimum value, and it appears that continuing the trust would defeat or substantially impair the accomplishment of the trust's goals, that situation could also terminate the trust.
Termination of a Living Trust
As with other types of trusts, a living trust can terminate on the date specified in the trust document, or when some condition is met or event occurs, such as the death of the beneficiary.  If the trust is irrevocable, some state laws provide that the trust can terminate early if the material purpose of the trust has been completed.
What happens after the trust terminates?
Once a trust terminates, and there is property remaining in the trust, the trustee and the beneficiary will work together to determine the best way to distribute that property. It is a good idea to include instructions in the trust instrument addressing how the assets should be distributed, in that case. If, however, there are no instructions, the trustee and the beneficiaries must decide the most reasonable method of dividing the assets.
If you have questions regarding your rights with respect to the end of a trust, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.

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