Like a will, a living trust is a legal instrument that controls what happens to a person’s property and assets after death. The trustor/grantor designates beneficiaries who will ultimately receive the assets in the trust, as well as a trustee who takes possession of the assets and holds them in trust for the beneficiaries. When the trustor passes away, the assets of the estate pass directly to the beneficiaries.
The primary reasons for creating a trust are:
- A trust generally minimizes estate taxes.
- Because a trust does not have to be probated as a will does, it saves the family of the deceased trustor time and money.
South Dakota, however, utilizes the Uniform Probate Code, which provides a simplified probate process for estates under $50,000, and levies no estate taxes. Since Federal estate taxes apply only to estates of $11.7 million or more, a trust is most likely to be created for large South Dakota estates that own expensive property and other assets.
Creating a Living Trust
The process of creating a living trust includes the following steps:
- Deciding whether to create an individual or shared trust
- Choosing the assets to be included in the trust
- Naming a trustee
- Naming beneficiaries
- Creating the trust with the help of an attorney
- Signing the trust document and having it notarized
- Transferring any property titles to the name of the trust
When creating a trust, the trustor/grantor may:
- Specify whether the trust is revocable or irrevocable
- State material purposes of the trust that should not be canceled or modified for any reason
Reasons to Modify or Terminate a Trust
After a trust is created and before its assets are distributed, the trustor, trustee, and/or beneficiaries might want to modify or cancel the trust due to changes in life circumstances or new laws. Some reasons for modifying or canceling a trust are:
- To improve the trust’s tax provisions
- To change the structure of the trust and make it more or less flexible
- To change a trustee or the terms of trustee succession
- To name a trust protector
- To change details of asset distribution
- To update an old or outdated trust
- To adjust the powers of and/or restrictions on a trustee or beneficiary
- To divide or consolidate trusts
- To clarify or improve the language of the trust document
Reforming or terminating a revocable trust is not difficult. An irrevocable trust, on the other hand, generally may not be revoked or changed once it is signed. Traditionally, it remains in force, as written, until the death of the trustor, who gives up interest in and title to the property in trust, as well as the right to cancel or change the trust.
State Laws Regarding Trust Changes
South Dakota, however, has living trust laws that not only protect the assets of a trust from the government, ex-spouses, and creditors; state laws are also very favorable to beneficiaries seeking modification, termination, or decanting of an irrevocable trust under any of the following circumstances:
- If the trustor/grantor is still alive, and all beneficiaries agree to the proposed modification/termination, the trust may be changed or canceled by judicial action or written agreement. This step can be taken regardless of whether doing so violates a stated material purpose of the trust.
- If the trustor/grantor has passed away, the trustee or a beneficiary can petition the court for judicial modification or termination of the trust as long as the proposed changes or cancelation do not violate a material purpose stated by the trustor.
- If the trustee or a beneficiary petitions the court to allow decanting of the trust (transferring assets from the old trust to a new trust with conditions more favorable to the beneficiaries), the court may rule favorably as long as the changes or cancelations made in the process of decanting do not violate a material purpose stated by the trustor.
If the trustee has discretionary authority over the principal or income of the trust, the decanting of an irrevocable trust is definitely possible. Of course, disagreement is likely to arise over what is/is not a stated material purpose of the trust. The services of a living trust lawyer are vital in determining and proving material purpose or the lack thereof in an irrevocable trust modification or termination case.
Are You the Beneficiary of an Irrevocable Living Trust That Requires Termination or Modification?
An experienced wills and estates attorney can identify the material purposes of the trust and assist you with termination, modification, or decanting of the trust’s assets. Contact us online or call us at 605-306-4100 to schedule a free consultation. We serve clients throughout South Dakota and northwest Iowa.