Your Living Trust

Revoking Your Living Trust

In theory all living trusts are revocable, if they were established in that format, either partially or totally.

The very nature of a revocable living trust would mean that it was constantly changing, hopefully increasing in value, while hopefully at the same time protecting the trustors and the beneficiaries against erosion of the estate from punitive probate laws and the real possibility of estate duties being imposed on the estate before it can be distributed.

Once someone has gone to the trouble and expense of establishing a revocable living trust, there are no logical reasons to revoke the trust. However their circumstances, usually of a tragic nature, it may be revoked.

Many people form a revocable living trust without the best of intentions, and for reasons that these forms of trust were not intended for by congress. These people are under the mistaken impression that by transferring their assets to a trust it will allow them to escape their creditors. If the trust is revocable, then by nature the trustee, usually the trustor, retains the ability to revoke the trust. Under law, creditor or income tax, if the trustor owes money, and has assets in a revocable trust that can meat even partially the money owed, then the tax authorities can swiftly and legally seize the assets in the trust to pay the trustor's debts.

Another instance where a revocable trust might be revoked or totally abandoned is where after establishing the trustor falls on hard times, sometimes through no fault of their own. They may choose of have no option to sell of either all of their assets or a very high percentage to pay their debts. This may mean that the costs of maintaining the trust will not justify its existence and it will be wound up.

Another aspect that may cause a revocable trust to be wound down is the behavior patterns of the beneficiaries. Parents may be unhappy with their children for example and their relationship breaks down to such an extent that that the trustors choose to removes them from their list of beneficiaries. This kind of tragic situation can occur. Having said that, it is very unusual and is very unpleasant experience for all concerned. Obviously the beneficiary can contest the trustor's decision, and will involve a long drawn out and very expensive court battle.

Sometimes parents who are concerned about one or all of their offspring's behavioral patterns can arrange for their share of the estate to be transferred to a form of irrevocable trust when they pass on. This would mean that this particular beneficiary will earn only interest from the estate, and be unable to access the principal. While this action may be regarded as extremely practical, it can cause no less an amount of bad feeling than removing them from the list beneficiaries altogether.

Another unpleasant situation that can arise where a revocable living trust may need to be revoked is when the one of the trustors falls into a state of constant ill health, and may need supervised medical attention or long-term hospitalization. This will almost certainly cause considerable expense. In certain instances if the family home has been assigned to a living trust, then the trustor may not be eligible to receive Medicaid. For reasons that are inexplicable, if the family home or any other tangible assets are outside of a trust then the trustor is liable to receive Medicaid.

In this tragic and unfair circumstance, then the trustors will probably have no option but to disband the trust until their health situation improves. Hopefully then they will be able to reinstate the trust and look forward to better days.