How to Dissolve a Trust Fund

A trust is a legal arrangement in which an individual, known as the grantor, has one or more trustees look over and manage some assets or other property. Often people create trusts for children or to prevent misuse of the assets or property, and grantors can select different types of trusts to suit their needs. In some cases, it becomes desirable to dissolve a trust a grantor has made. To do this, trustees follow a basic but formal process so that the dissolution of the trust does not create future legal problems.

Verify in writing the authority for dissolving the trust. The authority may stem from a clause within the trust document, an order you received from a judge or a legal statute. You generally need a court order to dissolve an irrevocable trust.

Review the trust document to identify all beneficiaries. Get the contact information for each beneficiary.

Write a letter to each of the named beneficiaries. Indicate your intent to dissolve the trust and provide a rationale. Ask that the beneficiaries respond in writing to express their consent or disapproval of the dissolution. File a motion for trust dissolution in court and argue your case in front of a judge to continue the dissolution process if one or more of the beneficiaries does not want the trust dissolved.

Review the trust document to understand how the creator of the trust wanted the trust property distributed to each beneficiary. If you have received a court order allowing dissolution following a motion for dissolution, the court order may stipulate the distribution, as well, in which case you must follow that allocation.

Take steps to protect the trust assets until the dissolution is complete. For example, you might put savings bonds in a secure savings deposit box at a bank or move property to a locked storage facility.

Prepare any documents necessary to transfer legal ownership of the property within the trust to the beneficiaries. This can be somewhat complicated, depending on whether the property was properly listed as owned by the trust and exactly what type of property is involved. Distribute the property as indicated in the trust or your court order.

Prepare and file a final tax return for the trust.

Tips

  • Trust dissolution processes and related laws, such as property laws, vary by state. Consultation with a licensed attorney can ensure you are following the proper protocols for your specific region.

References

About the Author

Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.