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How to Dissolve a Trust

What is a Trust?

A trust is a legal relationship where an obligation is imposed on a person to hold property for the benefit of beneficiaries. They are a good way to manage your tax and protect your assets. Above all, they are beneficial in structuring your finances, especially if you run a business. Further, depending on the type of trust deed the beneficiaries may receive capital, income or both. In this article, we’ll explain how trust structures work and how you can dissolve a trust.

Table of Contents

Types of Trusts

There are many different types of trusts. Some include:

Key Parties in a Trust

The Settlor: They are usually a lawyer or accountant who set up the trust. Their involvement ends after the deed is created. However, the settlor cannot benefit from the deed.  

The Trustee: This person is the legal owner of the assets. They decide how to manage the assets. Moreover, the trustee must act in the best interests of the beneficiaries.

The Appointor: The appointor has the ability to remove and nominate trustees.  

The Beneficiaries: The beneficiaries are those who benefit from the money or property in the deed.

How to Dissolve a Trust

There are four main approaches:

1. Vesting

The easiest way to dissolve a trust is to have a vesting date. A vesting date is a trust’s official end date. Additionally, it states the details of the termination of the deed. This would involve the trustee distributing the assets to the beneficiaries. 

When a trust dissolves this way, the trustee is required to:

  • Firstly, determine how to deal with each asset. For instance, an asset could be transferred to a beneficiary or sold with the profit distributed to the beneficiaries. 
  • Secondly, discharge all the liabilities of the deed.
  • Thirdly, prepare trust accounts.
  • Additionally, they must ensure the accounts are independently verified.
  • On the day, the trustee must formally appoint all of the property to the beneficiaries as per the deed. The trustee should record distributions and the dissolution of the deed.

2. Revoked

A trust may contain a provision which allows for the trustee or settlor to revoke the deed. However, if there is no provision, the deed is binding. For the deed to be revoked the provision should specify the exact steps required for the dissolution. It will require preparation and paperwork. Additionally, formal records must be made available to beneficiaries.

In some instances, a trust can be dissolved upon the consent of the beneficiaries. Additionally, the decision in the old English case of Saunders v Vautier permits a beneficiary to force a trustee to transfer the trust. However, all beneficiaries must be of age (18) and agree to terminate the deed. They must also be able to agree to dissolve the deed.

The process for dissolving a trust through consent requires that:

  • all beneficiaries formally decide to dissolve the deed;
  • all beneficiaries collectively decide to discharge the trustee formally;
  • the trustee formally appoints all trust property to the beneficiaries per the deed;
  • the trustee declares and records the deed terminated.

4. Court Termination

A court can dissolve a deed. The breakdown of a deed can require litigation. However, this is the most expensive approach.

To conclude, the termination of a trust can be a complicated process. However, this article should aid your understanding. If you have any further questions contact a lawyer today.

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