Current Trends - Terminating a Trust - Episode 110
Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle. Welcome back for another Legal Tea episode today, episode one hundred and ten! Today’s topic is a current trend … on this type of episode, we dive into something going on in the current time or that I’ve stumbled across on the news or social media, that is pertinent to my little estate and elder law world. Well, today’s episode is inspired by a recent show I watched on Netflix … or maybe it was Prime Video … called “The Summer I Turned Pretty.” Now, transparently, the show is a little “young” for me, but sometimes, I don’t mind watching shows that don’t require me to think. That, I can kind of just sit there and mindlessly watch. After all, my brain is going a million miles per hour and at one hundred percent most days, evenings, hours, and minutes. I have one of those brains that can’t stop. So, sometimes, I’ll watch things that just allow me to sit there and not require much thinking. That’s this show for me. It’s a cute show – but, yeah, doesn’t require much thought. Though, I should say before I go on that if you’re in the middle of watching this show, there will be “spoilers” in this episode, so don’t get mad at me if you keep listening – and I spoil how things transpire!
Anyway, so I just finished Season 2. In season 1, there is a lady that has cancer and her two boys, of course, really emotionally struggle with learning about the diagnosis and watching their mother battle it. Then, in Season 2, we learn that the Mom has passed away. Now, you remember that I watch this to not really think, right? Well, I was watching it recently and in the middle of an episode, one of her sons talks about how they got their inheritance “in trust” and their father is the trustee of their trust (aka, he’s the one holding the power). Immediately, I was like, “Well of course they drop a trust and estate reference in the show that I’m trying to watch to slow my brain!” So, here’s the back story, scoop, and why I’m going to talk about this today on this Legal Tea episode…
The whole premise of the show is that there are two Moms that are best friends – one of the Moms is the one I’m talking about (with the two sons) and the other Mom has two children too – one girl, one boy. Well, the two Moms are practically like sisters and the four children are BEST friends. So, every summer, all of them head to a beach house that is owned by the Mom that has cancer. Over many, many years, they develop lifelong memories and deep bonds with one another. Well, after the Mom with cancer passes away, the show shares that it turns out that Mom owned the dearly-loved beach house with her sister – and her sister wants to sell the house.
As we’ve talked about on here before, owning something jointly often does not go down through someone’s Will or Trust – it goes to the joint owner. So, the beach house goes to the sister who, like I just said, now wants to sell the house that holds so many memories. Well, the two sons of the Mom that passed away start talking about HOW to save the house – how to keep the house to keep the memories going. That sounds all fine and dandy, except you remember how I described the show as a “young” show – well, it’s because these two boys are YOUNG. Like one just graduated high school and the other is in college. So, it’s a bit, dare I say, kind of delusional to expect these two young boys to come up with the financial means of buying a beach house.
That’s when, in whatever episode it was, one of them brings up the trust that holds their inheritance – and basically, their father, who is the trustee, declines to empty it out to buy the beach house. That goes over like a lead balloon because, in young people maturity style, “but Daaaaad, they want to keep the house!” So, as a cheesy show would have it, one of the sons sees a newspaper headline about someone’s trust being terminated … and now, they want to know, “Well can they do that too? Can they terminate their trust so they can have their hands on the money?” Fast forward through the show, they choose not to push forward with seeking court intervention to terminate their trust, but nonetheless – it made me think, “This would be kind of fun topic to talk about on Legal Tea!” So, since the show, Summer I Turned Pretty, is new – I’m counting it as a “current trends” episode. Haha!
So, let’s talk about it – what are ways to wiggle your way out of a trust?
Well, first I’d look at the actual trust document to see two things: 1) WHO is the trustee? That is, who is holding the keys to the car, so to speak? 2) WHAT does the trust document allow? Does the trust allow the trustee to “clean it out” and liquidate the trust for the beneficiary? Does the trust give the beneficiary any authority to have a say in distributions? Does it give anyone the authority to terminate the trust? In my experience, when this whole “can I get out of this trust” question come into play, it’s usually because the trust document does NOT allow it. That is, when this has landed on my plate it’s because 1) the trustee is unwilling to cash in the trust (and maybe that’s a good thing – like here, in Summer I Turned Pretty, was it REALLY a good use of the trust money for these sons, who are YOUNG, to buy a beach house?) and/or 2) the trust is spelled out so specifically, that it doesn’t give the trustee to do much. For example, I have a case sitting on my desk right now where a beneficiary is entitled to $100,000 a year from the trust he inherited from his parents – and he asked if he’s entitled to ANYTHING more than the $100,000 – and he’s not. The Trust states it’s $100,000 a year, period, end of story .. until it runs out.
If the trust document itself doesn’t give you any wiggle room, usually the one recourse at that point is to get the Court involved and request that the Court, the Judge terminate the trust. There are a few options along these lines that why not just go over them quickly? Maybe this applies to you or someone you know now – or you or someone you know in the future. Alrighty… so starting off with …
Oh! Before I start, I should say that these are coming from the Indiana Code, so they are Indiana-specific; though, I have found many states are fairly similar-ish in these kind of things, so if this is something that is pertinent or relevant, just be sure to speak with a licensed attorney in your state to ensure you’re working with accurate information! Okay, now for real … starting with…
Termination of Trust with Less than $75,000
So, here in Indiana, there is a law that states that if the total value of the Trust is less than $75,000 AND if the trustee concludes the value of the Trust is insufficient to justify to costs of administration AND the trustee notifies the Trust beneficiaries, the trustee could push forward with terminating the Trust and distribute the assets as the Trust dictates. Now, it’s important to know that it does say at the beginning of this section, “Unless the terms of the Trust provide otherwise…” which means that if the Trust document has a section on this very thing, the words in the document override this. So, I’ve seen where some Trust documents will say this can only happen if the Trust has less than $25,000 – so that provision in the Trust would override what this statute says, does that make sense?
So, that can be done by the trustee – without Court involvement. Though, if necessary, Court COULD be involved in this, though. So, say the trustee wanted to terminate the trust (and trust was under $75,000) and maybe the beneficiaries disagreed, then the trustee could ask the Court to determine that continuing on with the administration is not in the best interest of the beneficiaries. I could see that happening SO rarely. But, it is a nice segway to the next way to terminate a Court, which is…
Termination of Trust by Getting the Court Involved
A Trust can also be terminated by the Court, the Judge IF 1) the purpose of the Trust has been fulfilled OR 2) Continuing on with the Trust administration would be “illegal, impossible, impracticable, wasteful, or impair the administration.” That’s a lot to unpack, but basically, to me, I’d say if you can prove, with data and facts, why this Trust should not continue, then you have a fighting chance. Since the Court is involved, it’d be recommended than an attorney be involved to help you craft an argument.
Terminating a Trust through the Court is probably more likely and the more popular solution – Of the cases I’ve worked on when we’re asking the Court to terminate a Trust its because 1) the Trust exceeds that $75,000 threshold and the trustee doesn’t want to serve anymore … or 2) the Trust just doesn’t make sense anymore. Like, back in the day when the estate tax exemption was really low, a lot of people did irrevocable tax planning trusts in case they were to pass while the estate tax limit was so low – well, the limit got increased (like, currently it’s $12.92 Million per person) so people had these super-complicated irrevocable trusts for, at least in their opinion, for not reason. And they wanted out. And in the cases I have worked on for this – the Court let them out. It was just a bit of a process to get to the finish line, but that’s okay. One super quick final thought on this topic…there’s something called …
Decanting a Trust
I’m going to do the world’s fastest explanations since we’re almost out of time – but there’s something called decanting a Trust that does not involve the Court, but basically there’s a specific thing under our Indiana Code (again, I’m sure most other states have it too) that allows us to take Trust assets and dump them into another Trust, so long as the provisions are fairly the same/consistent. This is also something on the table, but just work with someone like me in your state – and they’ll help you uncover options.
So, I hope this topic was kind of different, kind of interesting – inspired by the silly show I happened to start watching on Prime Video, Summer I Turned Pretty. I’m glad my mindless show-watching turned out to be fruitful, at least for this podcast. Alrighty, I’m out of time, friends, so let’s wrap this episode up -- next week, we're going to take off for Labor Day and it'll give me the ability to catch up a bit. So, the following week, on September 12th, is on estate planning of the rich and the famous – on that episode, we’re going to dive into what happened estate-wise following the passing of Casey Kasem, who is likely a name you may not immediately recognize, unless you’re the biggest Scooby Doo fan ever. Casey was the voice of Shaggy on Scooby Doo. He passed away and some … stuff happened in his estate proceeding. It’s a good one. So, we will dive into that Tuesday, September 12th, Legal Tea Listeners! Talk to you then and stay well!