There are two types of trusts: revocable trust and irrevocable trusts. Both types can be terminated, but irrevocable trusts are a bit more difficult.
A revocable trust can be terminated by the Grantor (also referred to as a Settlor) while he or she is still alive. Typically this happens with our clients who have outdated “A B Trusts” which were popular back when the federal estate tax thresholds were so low. Now, a joint qualified spousal trust is the way to go, and the old A B Trusts need to be revoked. Oftentimes this is as simple as writing up a revocation and signing it with the same formalities (notary, witnesses) as when you created it. Be sure to remove everything from the old trust before revoking it, though!
If the Grantor no longer has capacity, a lot will depend upon the Trust document itself or, if there is a valid power of attorney, the powers granted to the Grantor’s agent thereunder. Some Powers of Attorney will allow the agent to revoke or modify an old trust in order to cope with changes to the estate planning laws. Other times the Trust will allow for termination based upon the consent of all of the beneficiaries.
We often revoke irrevocable trusts for our clients. Sometimes our older clients have set up an irrevocable trust in an attempt to plan for Medicaid and didn’t realize the implications of an irrevocable trust. Other times our clients have inherited an irrevocable trust from a parent or grandparent, and want use that money without restrictions or the high costs of a trust administration – higher tax rates, expensive accounting and reporting, etc. Whatever the reason, Missouri law provides several ways to terminate an irrevocable trust. The easiest method is if the trust has less than $250,000 in it. Alternatively, if all of the adult beneficiaries agree, Missouri law provides that a trust may be terminated if it is uneconomical. Both of these methods require a judge to approve and order the termination. The trust document itself may also provide avenues for terminating the Trust which are less burdensome.
The first step to terminating a trust is to set up an appointment for an attorney to review the trust document. Then, your attorney will work with you to find the easiest and most economical route to terminate it.