A trust can be the foundation of an effective estate plan, but it is not necessarily the foundation of every effective estate plan. Trusts are powerful tools for accomplishing important tasks, but no one trust works for everybody, and not everybody needs a trust. Sometimes, a trust can outlive its usefulness (if it was even needed in the first place), and it can leave a person asking, "how do I get rid of the trust I already have?”
Trusts are among the most powerful tools for moving wealth outside the reach of the gnashing teeth of the estate tax and the courts. For much of the last two decades, the estate tax rules have not been predictable from year to year, so many people adopted trusts for primarily tax planning purposes. However, at the beginning of 2013, Congress gave us reason to believe that the estate tax will not affect the vast majority of us when it hiked the Coupon Amount (the amount a person can pass on estate tax-free) all the way up to $5 million and added an annual inflation adjustment.
The new estate tax rules do not mean that anybody who has less than $5 million worth of assets cannot benefit from incorporating trusts into her or his estate plan. It is just that now that taxes are not such a big concern, we can focus on the other benefits of trusts, which include such things as asset protection and probate avoidance.
But what if you have a trust that you really don't need anymore? That can happen for a variety of reasons, and your best move might be to get rid of it in the most efficient and inexpensive way possible. The Wall Street Journal recently published an article titled “How to Dismantle a Trust” which provides some great pointers.
As the article notes, there is a way to properly blow up your trust. On the other hand, do not be too quick with the dynamite. Why? There may be some really great reasons to keep your trust that aren't that apparent right now.
For example, the probate and conservatorship avoidance afforded by a properly funded revocable living trust can save time, money, and inconvenience should you become incapacitated or die. Moreover, the inheritance protection available for your heirs can be an important consideration. Do you want your child's inheritance to end up in the hands of an ex-spouse or a creditor? If not, your best solution might be a trust.
If you have yet to set up a trust, there are still many great reasons to establish one for yourself and your loved ones. On the other hand, if your current trust is more burden that benefit, then the trust can be shut down.