Does Trust End When All Assets are Distributed?
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Question:
Our Safe Harbor Trust allows the trustee to remove the assets in the trust and return them to the trustor if the trustee decides that the trust is no longer appropriate. This is an irrevocable trust and is supposed to be in effect until the beneficiary dies. If there are no assets in the trust does the trust legally still exist? If so, are the reporting, management, and tax return duties still in effect?
Response:
I’m not exactly sure what your “safe harbor” trust is, but you are correct: trusts only exist legally if they hold assets. If they are empty, they don’t exist so none of the trustee duties you describe apply. That said, if the trust did exist and is empty simply because all the assets have been distributed, then many of the reporting and tax return obligations may survive until they have been fulfilled. For instance, the trustee may still have file a final tax return and send the beneficiaries a final accounting.
An exception to the rule that a trust only exists when it is holding assets are trusts prepared as part of an estate plan. Often plans include so-called “pour over” wills that provide upon the grantor’s death that all her assets will “pour over” into the trust. In these cases, while the trustee has no duties until the death occurs and the trust is funded, the trust itself exists as a legal entity.
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