Although a Last Will and Testament remains the most commonly used of all estate planning tools, a living trust is not far behind. If you are planning to incorporate a living trust into your estate plan, are you already have one, you should know some of the most important features and benefits of a living trust. You also need to know when the trust terminates. Toward that end, the living trust lawyers at Collins Law Firm explain how and when a living trust terminates in California.
What Is a Living Trust?
The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
How and When Does a Living Trust Terminate?
How a living trust terminates will depend, to some extent, on the type of trust in question. If the trust is a revocable living trust or a testamentary trust, the Settlor has the authority to terminate the trust at any time and for any reason – or without giving a reason. The Settlor can also include a termination date within the trust agreement itself or can provide instruction to the Trustee regarding the conditions under which the trust should be terminated. If the trust in question is an trust is an irrevocable living trust, however, the Settlor does not have the authority to terminate the trust after it is established.
The Settlor can include a termination date within the trust agreement; however, once the trust activates the Settlor cannot make any changes. The Settlor may also give the Trustee the discretion to terminate the trust when the trust purpose has been fulfilled or when the trust assets diminish to a point at which the trust is no longer able to fulfill the trust purpose.
Court Termination and California Trust Law
If you have an irrevocable living trust that is silent regarding termination, petitioning a court to terminate the trust is always an option. The condition under which an irrevocable living trust can be terminated vary from one state to another because state law governs most aspects of trust administration. California Probate Code section 15404(a) allows for an irrevocable living trust to be amended or even terminated “by the written consent of the Settlor and all beneficiaries without court approval of the modification or termination.” That section goes on to say that “If any beneficiary does not consent to the modification or termination of the trust, the court may modify or partially terminate the trust upon petition to the court by the other beneficiaries, with the consent of the settlor, if the interests of the beneficiaries who do not consent are not substantially impaired.” In short, California allows the Trustee and all beneficiaries to agree to terminate an irrevocable living trust. If everyone is not in agreement, a judge can order the termination of a living trust if the judge is convinced that doing so is in the best interest of the beneficiaries.
Contact Living Trust Lawyers
For more information, please join us for an upcoming FREE webinar. If you have additional questions related to how and/or when a living trust terminates, contact living trust lawyers near you. Contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.