How Exactly Does One Go About Revoking a Revocable Trust?

The basic steps involved in revoking a revocable trust are fairly simple and include the transfer of assets and an official document of dissolution.

A revocable trust is a flexible legal entity/financial structure that allows the individual who creates it, known as the grantor, to change, remove or alter the trust assets—or, in fact, amend the trust itself or its beneficiaries—at any point during their lifetime.

Also often referred to as a living trust, a revocable trust is often used to transfer assets to heirs while avoiding the time and expenses associated with probate—which they often would incur if assets were simply bequeathed to them in a will. During the life of the trust, income earned is distributed to the grantor, and only after death does its property transfer to the beneficiaries.

Key Takeaways

• Revocable trusts, as their name implies, can be altered or completely revoked at any time by their grantor—the person who established them.
• The first step in dissolving a revocable trust is to remove all the assets that have been transferred into it.
• The second step is to fill out a formal revocation form, stating the grantor’s desire to dissolve the trust.
• The official revocation declaration must be signed by the grantor, notarized, and, in some cases, filed with a local probate or estates court.

Reasons for Revoking a Trust

People might revoke a trust for any number of motives. Usually, it involves a life change. One of the most common reasons for revoking a trust is a divorce if the trust was created as a joint document with one’s soon-to-be ex-spouse.

A trust might also be revoked simply in the event that the grantor wishes to make changes that are so extensive that it would be easier to dissolve the trust and create a new one than to try to alter it. A revocable trust may also be revoked if the grantor wants to change the provisions of the trust completely.

Important

Although they avoid probate, revocable trusts are not exempt from estate taxes. Since the grantor retains control of the assets during their lifetime, those assets are considered part of the taxable estate.

How to Revoke a Trust

There are generally three steps involved in dissolving a revocable trust:

• Step one: Remove all the assets that have been transferred into the trust. This procedure involves changing titles, deeds, or other legal documents to transfer ownership.
• Step two: Create a legal document that states the trust’s creator, having the right to revoke the trust, wishes to revoke all terms and conditions of the trust and dissolve it completely. Such documents, often called a “trust revocation declaration” or “revocation of living trust,” can be downloaded from legal websites; local probate courts may also provide copies of them. It can be advisable to have a trust and estates lawyer draw one up for you or at least review it to make sure it is correctly worded and meets all the qualifications of your state’s laws. Also, if the trust has a variety of assets, it is often easier to let a qualified attorney make sure everything has been properly transferred out of it.
• Step three: The dissolution document should, at minimum, be signed and dated by the trust’s creator, with a notary public acting as a witness. If the trust being dissolved was registered with a particular court, the dissolution document should be filed with the same court. Otherwise, you can simply attach it to your trust papers and store it with your will or new trust documents.

Who Can Dissolve a Revocable Trust?

The person who established the trust, or the grantor, can dissolve a revocable trust at any time. The grantor might dissolve the trust in order to completely rewrite its terms or because of a life change, such as a divorce.

Can a Dissolution Be Legally Challenged?

Dissolving a revocable trust can raise red flags for family members, especially if the grantor is elderly. The dissolution can be contested by those of legal standing under certain circumstances, including when there appears to be undue influence on the grantor, the grantor is mentally incompetent at the time they make changes, or there is misappropriation of funds by the trustee.

Can an Irrevocable Trust Ever Be Dissolved?

It is possible to dissolve an irrevocable trust, but it is much more complicated than dissolving a revocable trust. Typically, it requires the consent of all of the beneficiaries, paperwork has to be filed, and court approval may be required. What’s more, if the trust held assets that have appreciated substantially in value, there can be significant tax consequences when the assets are distributed.

The Bottom Line

A revocable trust can be dissolved by the person who set it up, or the grantor, at any time. There are several steps involved, but the process is not a complicated one. Common reasons for dissolution include a divorce or the desire to completely rewrite the original trust.