If you have a family Trust, it may be serving your family and your finances well.
On the other hand, the Trust may be needlessly costing your family a large amount of money now or in the future.
In that case, you should consider dissolving the Trust.
When establishing a Trust, you are creating a separate legal entity. It’s like a corporation – you can’t see it, or smell it, touch it or feel it, but it is there.
Or to use another comparison, a Trust is like acquiring a large pet. You need to feed it, tend to its needs and take it in for a check-up from time to time.
Just because you once set up a Trust, that does not mean you have to keep it for as long as you live.
If the Trust is not meeting your family’s present or future needs, perhaps you should think about terminating it.
Here are some factors you might consider.
FACTOR #1: You may not have needed the Trust from the beginning. A Trust is not the right solution for everyone. There are a number of “Trust Mills” that promote their Trust programs supposedly as the ideal planning tool for everyone. Actually, a Trust should be created for a specific need that your family has. If the family never had that identifiable need, it may have been an expensive mistake to create a family trust in the first place.
FACTOR #2: Your family’s needs may have changed. The Trust may have been created to deal with a particular family need such as a disabled child or family problem that no longer exists. The Trust may have been created to deal with a farm or real estate in another state or a business enterprise that you no longer own. It may be time to rethink whether you need a Trust in your current circumstances.
FACTOR #3: The laws have changed. In the past fifteen years, financial institutions and the legislature have created planning alternatives that were once available only to Trusts. These planning tools can provide solutions for bank accounts, real estate, stocks and other investments. You may wish to consult with your banker, broker, CPA or attorney to see if one of these tools is available for your investments.
FACTOR #4: Your assets may have diminished. Trusts have often been established to protect estates of larger than average size. Your assets may have been considerably larger than they now are. Your investments may have lost value with the stock market gyrations. Your family’s expenses may have drained what’s left of the original assets.
It may be time to dissolve the Trust
The main way of accomplishing that is to “defund the Trust.” What this means is removing all the assets that are held in the name of the Trust and putting them into your name or into the names of other family members.
This is not a decision to be taken lightly. Hopefully, you set up the Trust for a serious reason at one time in the past. Defunding the Trust should also be done carefully and with full awareness of the consequences.
First of all, you should consult with your family, your CPA, your financial advisor and your attorney. You may need to take what they say with a grain of salt because some of them may have a personal vested interest in continuing the Trust. There may be tax implications or relationships issues involved in defunding the Trust.
What’s more, there may be beneficiaries who already have a vested legal stake in the Trust that could make defunding the Trust more difficult.
No matter how simple or complex your estate plan may be, you should fully review it at least once every three years. In those three years, your family circumstances may have changed, the law may have changed or your attorney’s advice on how to best plan your estate may have changed.
In any case, whether to dissolve a family Trust can be a difficult decision. However, you should not think that just because you once created the Trust that you need to keep it forever.