Can a Trustee of a Trust Created Under a Last Will Distribute the Trust Assets Outright to Named Beneficiaries and Then Terminate the Trust

HNW Elder Law, Will Contest and Probate Litigation

  • Many people create trusts for beneficiaries in their last will(s)
  • There are circumstances when a trustee needs or wants to terminate the trust
  • This article discusses when a trustee under a Last Will can collapse the trust and distribute trust funds to a named beneficiary

TrusteeSometimes it makes sense to terminate a trust in a will but, not always.  The decision often depends on the language of the trust document and the intent of the trust creator. If the beneficiaries are young, reckless (aka young & stupid), spend thrifts, alcohol or drug addicts, I have serious doubts whether the trust can be terminated.

Here’s an Actual Recent Case Discussing the Termination of a Trust Under a Last Will by the Trustee

A family consisted of a husband, wife and 3 children: The husband survived his wife by several years. The wife’s entire estate passed to her husband. The surviving 3 children are all competent adults in their 50’s who get along with each other. One is the sole executor under his dad’s will. Under the terms of the will, the son and one other sibling are to be appointed as co-trustees of a trust created under his will, called a testamentary trust. The trust gives the trustee broad powers to distribute income and principal to the named beneficiaries. The executor wants to keep things simple. One attorney advised that if all 3 children agreed in writing they could terminate the trust before it was funded and then have the assets of the estate used to (1) pay estate debts (which are minimal), (2) pay NJ death tax (there is none), and (3) distribute the remainder of the estate outright to the 3 children in equal shares. This proposal would avoid the need to appoint trustees, fund the trust and proceed from there. This opinion is pursuant to the provisions of N.J.S.A. 3B:31-27.a., which provides, “a non-charitable irrevocable trust may be modified or terminated upon the consent of the trustee and all beneficiaries, if the modification or termination is not inconsistent with a material purpose of the trust.” I was asked my opinion. I believe this proposal is a good one under these facts. The trust can be terminated.

To discuss your NJ Estate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Trust Estate Planning Attorney

Previous PostNext Post