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How and When a Trust Terminates in Vermont

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Trusts are an essential tool in estate planning, providing a way to manage and protect assets for beneficiaries. In Vermont, as in many states, the termination of a trust can be a complex process influenced by various factors including the type of trust, its terms, and the circumstances surrounding its creation and administration. To help know what to expect from a trust, the attorneys at Unsworth LaPlante, PLLC discuss how and when a trust terminates in Vermont

Understanding Trust Basics

A trust is created by a Grantor, also referred to as a Settlor or Trustor. A trust is a fiduciary arrangement where a Trustee, appointed by the Grantor, holds and manages assets for the benefit of beneficiaries according to the terms set by the Grantor and found in the trust agreement, the legal document used to establish a trust. All trusts are categorized as testamentary or living trusts, with the former not activating until the death of the Grantor and the latter activating during the lifetime of the Grantor. A trust can also be revocable or irrevocable. A revocable trust can be revoked or modified by the Grantor at any time and for any reason while an irrevocable trust cannot be revoked or modified after the trust is established. Within these general categories, there are also numerous specialized trusts established for a specific purpose, such as a charitable trust, Medicaid trust, or an Irrevocable Life Insurance Trust (ILIT). The type of trust involved is an important factor in determining how and when a trust terminates.

Why Might a Trust Terminate in Vermont?

How a trust in terminated will depend, in part, on the reason for the trust termination. A trust in Vermont might terminate for several reasons, including:

  • Fulfillment of Purpose: A trust should terminate when its primary purpose has been fulfilled. For instance, a trust set up to fund a beneficiary’s education will terminate once the beneficiary completes his/her education and all educational expenses have been paid.
  • Expiration of Term: Some trusts are designed to last for a specific period and upon the expiration of this term, the trust automatically terminates.
  • Revocation by Grantor: In the case of a revocable trust, the Grantor can terminate the trust at any time and for any reason.
  • Agreement Among Beneficiaries: If all beneficiaries agree and the trust’s purpose has been met, the beneficiaries may be able to collectively decide to terminate the trust.
  • Court Order: A court can order the termination of a trust if it determines that the trust’s purpose has become impossible, illegal

Vermont Trust Laws

The legal framework governing the termination of trusts in Vermont is governed by Title 14A of the Vermont Statutes. Some important provisions include:

  • Voluntary Termination: Under 14A V.S.A. § 411, a noncharitable irrevocable trust can be terminated with the consent of the Trustee and all beneficiaries if it is consistent with the purpose of the trust.
  • Modification or Termination by Court: According to 14A V.S.A. § 412, a court can modify or terminate a trust if, due to circumstances not anticipated by the Grantor, the modification or termination would further the purposes of the trust.
  • Uneconomic Trusts: As per 14A V.S.A. § 414, a trust with a total value that does not justify the costs of administration may be terminated by the trustee, provided that the trustee gives notice to the beneficiaries.
  • Combination and Division of Trusts: 14A V.S.A. § 417 allows for the combination or division of trusts if it does not impair the rights of any beneficiary or adversely affects the achievement of the trust’s purposes.

How a Trust Terminates in Vermont

The steps involved in terminating a trust in Vermont will also depend, to a large degree, on the type of trust involved and the reason for termination. You should always consult with an experienced trust attorney to determine what steps are required to legally terminate a trust; however, some common steps include:

  1. Reviewing the Trust Agreement: Sit down with an attorney and review the trust agreement to understand the terms and conditions under which the trust can be terminated.
  2. Consent of Beneficiaries/Trustee: Either the law or the terms of the trust agreement may require you to obtain the consent of all beneficiaries and/or the Trustee before moving forward with termination.
  3. Preparing a Petition: If the trust cannot be terminated by agreement, a petition to the court may be necessary.
  4. Distribution of Assets: Upon termination, the Trustee is responsible for distributing the trust’s assets according to the terms of the trust agreement or court order. All trust assets must be transferred out of the trust when the trust is terminated.
  5. Final Accounting: The Trustee must provide a final accounting to the beneficiaries, detailing the administration and distribution of the trust assets.

Do You Need Help Terminating a Trust in Vermont?

For more information, please attend one of our upcoming FREE webinars. If you would like assistance with terminating a trust in Vermont, contact an experienced Essex Junction trust administration attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Ellen LaPlante
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