How to Break a Trust Fund

While a trust may have been created with the best of intentions, circumstances can change and the original reasons for the trust may not be relevant anymore. In those cases, the trust can be broken up. Trusts are organized by state law, but the Uniform Trust Code (UTC) is endorsed by the American Bar Association and AARP, and is the controlling body of law in 23 states, with 3 more considering adoption. Therefore, when talking about trust law in general, the UTC is the best basis to use.

Speak with all of the beneficiaries of the trust and convince them termination is the best way to go. Some methods for terminating the trust require unanimous consent from the beneficiaries. Even if those means are unavailable, the support of the beneficiaries makes breaking up the trust significantly easier.

Review the document that organized the trust to accurately define its purpose. If a court terminates the trust a significant component of that decision will relate to the trust’s purpose.

Talk to the settlor about dissolving the trust. If all of the beneficiaries and the settlor agree to terminate the trust, the parties can file a joint motion to the court to terminate the trust.

Sue to terminate the trust if the purpose is illegal, contrary to public policy or if circumstances arise that make it impossible for the trust to be administered effectively.

Petition the court to terminate due to the trust no longer being necessary to achieve the trust’s purpose. This suit only works if all beneficiaries agree to terminate the trust. An example of a trust that should be terminated under this theory is one meant to provide for your children’s shelter, but now the children have been adopted and the new parents will provide those needs.

Apply to terminate the trust due to lack of sufficient trust property. If the trust has less than $50,000 in assets, the trustee may sue to terminate a trust under the theory that the value of the trust property does not justify the expense of maintaining the trust.

Petition the court to terminate due to the trust having achieved its purpose. This action does not require unanimous agreement and is distinct from the theory mentioned above in that you have to prove that the purpose has already been fulfilled. An example of this is a trust created to provide for three children until the graduate from an undergraduate institution and all three children have so graduated. In that case, one of the children can sue to terminate without the agreement of the other two beneficiaries.