If you leave a trust to a loved one, it’s probably because you want to ensure that they are taken care of after you are gone. But that very act may cause you to wonder how long can a trust remain open after somebody has died? The answer is 21 years, which, of course, begs another question – what happens to the trust after 21 years? That gets a little more complicated. So we’ll explain how a trust works and what happens to a trust after 21 years.
Consider working with a financial advisor as you weigh the relative merits of trusts and estates.
How a Trust Works
Once you have set up a trust, it’s actually called a living trust, or a revocable living trust. A living trust is a very literal term. You are living, and because of that, you can make changes to the trust at any time. This includes adding more money to the trust or adding or removing a beneficiary. But once you die, your revocable living trust instantly becomes an irrevocable trust, and that means that it can’t be changed.
This is a good thing. An irrevocable trust means that your beneficiaries will receive your assets in the way that you intended. The trustee – the person you named to run the trust – will now oversee those assets and can start dispersing property or money to the beneficiaries in the trust.
Why Some Trusts Continue for up to 21 Years
Sometimes there are good reasons for a trust to remain open for years. Trusts tend to stay open for a long period of time when the beneficiaries are minors. If you’re leaving a considerable amount of money to a 10-year-old, for instance, you may want the trustee to dole out the money carefully and periodically. Or you may want the 10-year-old to receive money and property once he or she is an adult.
Of course, you might have family members with special needs. And they may need money distributed to them throughout their life, far longer than 21 years. If that’s the case, you should consider opening up a special needs trust. A special needs trust can remain open for as long as your beneficiary lives, or until the funds run out.
However, you will want to consider working with a financial advisor to set up a special needs trust. If you set it up improperly, you could affect a beneficiary’s ability to receive money that they may be entitled to disability benefits or Medicaid.
When a Trust Ends
As noted, a trust can remain up and running for 21 years, but it doesn’t have to. Many trusts end soon after a person’s death. That’s because generally if you leave beneficiaries a trust, it contains assets and property meant to go to those beneficiaries.
Once your belongings have been distributed, there is nothing left in the trust. And it dissolves – after you sign what’s called a trust dissolution form.
With some exceptions, it’s arguably in your beneficiaries’ best interest that an irrevocable trust ends relatively quickly, such as within a year’s time. If a trust lasts longer than a year, the trustee is required to give beneficiaries an accounting of every year of everything they have done with the trust.
The trustee may also take an annual trustee fee. This may be advantageous if the trustee is a beneficiary who you would like to see paid for their work. Or it could be a disadvantage if you’re worried that the money will significantly reduce the trust’s assets.
If a trust is open for too long, that also means there is more opportunity for something to go wrong. For instance, if a beneficiary feels that the trustee isn’t doing his or her job very well, and they aren’t getting money fast enough or the assets they deserve, they could sue the trustee. If you can envision family squabbles in the future, after your death, that’s another reason you probably wouldn’t want the trust to remain open for years.
If you plan on leaving an inheritance to your beneficiaries, and there are complicating factors in which you worry that you won’t be able to simply leave assets to family members or friends in a will, setting up a trust is probably the right approach. But you will need to think and plan beyond simply setting up a trust. And consider how long you want the trust to operate. There’s a lot of thought that goes into setting up what is a significant piece of any estate plan. But if you take the time to do it, you’ll be able to trust that your trust will operate in the way that you want it to.
Estate Planning Tips
- Consider talking to a financial advisor about whether a perpetual trust is something you need. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Trusts are just one element to consider including in an estate plan. Creating your plan starts with drafting a last will and testament outlining how you’d like your assets to be distributed. You can make a simple will online using will-making software. In addition to a will, you may also consider an advance health care directive, power of attorney and life insurance to cover all of your financial bases.
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