A living trust is a powerful legal instrument that helps you leave assets directly to your heirs and bypass the complicated probate process. But what happens if your life circumstances change, and you want to revoke your living trust? Terminating your living trust is possible; however, the steps vary depending on the type of trust and other factors.

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What is a living trust?

A living trust is a legal document you create during your lifetime that makes it easier to transfer wealth to your heirs when you pass away. When you create a living trust, you designate a trustee to manage the assets in the trust for your beneficiaries while you’re still alive. Living trusts function similarly to wills, but unlike a will, the trusts’ assets typically get to bypass probate.

Living trusts can be irrevocable or revocable, and whether you can terminate them depends on the type of trust you have.

• Irrevocable living trust: If you have an irrevocable living trust, you cannot dissolve or make changes to it after its creation. With this type of trust, you have little to no control over your assets. However, it helps you avoid estate taxes and offers protection from creditors. It’s challenging to revoke this type of trust. You can only do so under specific circumstances or if all of the beneficiaries are in agreement. Otherwise, only a court decree can terminate the trust, and even that’s not guaranteed.

• Revocable living trust: A revocable living trust can be changed or modified anytime after its creation; therefore, you maintain greater control over your assets. However, there are no tax benefits or protection from creditors. Revocable trusts are not exempt from estate taxes since the person that creates the trust (the grantor) retains control over it. Therefore, the trust assets are considered part of their taxable estate.

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Why revoke a living trust?

Someone might want to revoke a living trust for a number of reasons, including:

• The terms of your living trust no longer fit your estate planning objectives
• You want to amend the distribution schedule
• You want to change the successor trustees
• You want to change the provisions of the trust
• You want to transfer trust assets back into your name
• You no longer see a need for the trust and wish to dissolve it

One of the most common motives for revoking a living trust is if the trust was created jointly between spouses and the couple is getting a divorce. In this case, it’s best to revoke the trust and create separate trusts for each individual. If there are extensive changes you want to make to your trust, it’s typically easier to revoke it and start from scratch versus redoing an existing trust.

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How to revoke a living trust

If you have a revocable living trust, it can be terminated at any time. If you have a joint trust (for example, with a spouse), either grantor can revoke the trust, with the trust assets being returned to each individual according to how the assets were owned before being transferred into the trust.

Start by examining any specific trust provisions that declare how to revoke your trust and what requirements exist, perhaps in addition to the revocation requirement in writing. Also, find out to whom you must send a copy of the revocation.

The first step to revoking a living trust is to remove the assets from the trust. This involves retitling the assets back into your name. Next, you will need to fill out a formal revocation form stating your desire to terminate the trust. The revocation form will then need to be signed and notarized.

After the person who establishes a living trust dies, the trust may provide that the trust is to be terminated. Typically, when a living trust is terminated after the settlor’s death, the successor trustee distributes the trust principal to the beneficiaries designated to inherit the trust assets.

Many trusts do not get formally terminated. Transferring all trust assets to beneficiaries often has the same effect as a trust revocation. Review the trust instrument to determine any specific requirements regarding trust termination.

You can find trust revocation forms online, but it might be best to consult with an estate lawyer to help ensure you transfer the assets out of the trust correctly. Transferring the assets back into your name is the most complicated (and important) part of revoking a trust.

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What if you want to amend your trust?

What if you don’t want to revoke your trust but instead want to amend it?

While it’s uncommon for people to revoke their trust completely, it is common to amend or restate a trust. Maybe you want to add a bequest to a friend or a grandchild, or perhaps you want to change the name of the successor trustee.

While changes to a trust may be addressed through a trust amendment, it may be simpler to create and execute a trust restatement. With a restatement, you keep the name of your trust, but you simply restate all of the terms of the trust. Think of it as having an old, outdated will that gets updated with a new will.

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The bottom line

Sometimes circumstances change, and it may make sense to terminate your living trust. Revoking a living trust is possible with both types of trust but is much more straightforward with revocable living trusts. All you need is to transfer the assets from the trust back into your name and fill out a formal trust revocation form.

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Create a living trust online

Creating a living trust is important in protecting your legacy and safeguarding your family’s future. Create a low-cost, legally valid living trust with MyAdvocate. Not sure which estate planning documents are best for your situation? Take our short questionnaire to find out.

Source: https://t-tees.com
Category: WHO