Spring Cleaning – Revoking A Trust
Spring is just around the corner, so let’s talk about tidying up your household documents. People create trusts for many reasons. The creation of a trust may have been part of estate planning to protect the legacy of a family asset, the control the distribution of assets to children avoiding large lump sum payments. Some people utilize trusts for tax planning purposes, for privacy reasons, or as a tool to avoid probate.
Time passes, circumstances change, and a trust may longer be needed to manage assets while living or after you pass. There are a few ways you can terminate or revoke a trust.
Not funding the trust
You may have heard that a “trust must be funded”. This means that assets must be in the trust for it to have a life, to fulfill its purpose. To fund a trust you put assets in the name of the trust, such as real property, investment accounts, or assigned tangible property to the trust such as gun trusts. If you never put any assets in the trust, there won’t be any assets for a trust to manage, it has no effect.
A trust may be revoked through writing that specifically revokes it. The trust must be accurately named in the revocation, the provisions of the trust that allow revocation or state the powers of the settlors/trustors/trustees must be identified and it must be signed by those having the authority to do so. Then of course any property is named in the trust must be taken out of the trust, the ownership must be changed. The trust has been revoked, so this isn’t absolutely necessary but transferring that asset will be messy if this step isn’t taken.
Joint trusts and divorce
Some couples form a trust together in a joint trust. These trusts have two people as settlors/trustors and are usually the trustees in the case of a living revocable trust. What happens if these people divorce?
The assets in a trust are usually marital property and are part of the separation discussions. Who takes what assets from the divorce are discussed and definitively decided through the divorce process. The changing of title of assets in the trust must be legally changed from the trust to the individual taking the asset from the relationship. This will take any asset “in the trust”, out of the trust. If all the assets owned by the trust are transferred out of the trust, the trust is essentially “defunded”. The couple should specifically revoke the trust through a writing as mentioned above to clearly and cleanly terminate the trust. The effect of not doing this depends on the language of the trust and the status of assets that have not been removed from the trust.
I counseled a woman recently who has/had a trust with a former spouse. The only asset they had in the trust was jointly owned real property. Prior to their divorce, the real property was sold, and each took their share in the proceeds through the divorce. The couple had never revoked the trust. Does this matter? None of the woman’s assets are in the trust. But whether or not the presence of this unrevoked trust in her name and her former husband’s name still leaves a big question mark as we move forward with her independent estate planning. It’s a good thing she informed her attorney of the presence of the trust so we can address the issue through her updated estate plan.If you have questions about estate planning, contact an estate planning lawyer in Belgrade, MT, like the ones at Silverman Law Office, PLLC.