Dissolving a Trust in Arizona

If you have a trust, changing circumstances may make it less desirable to continue operating it. Many people assume that once you create and fund a trust, you cannot dissolve it. However, the law allows for the dissolution of a trust. The procedure for closing a trust, however, depends on its structure.

As a result, you may need help from an experienced estate planning attorney who can explain how to shut down your Arizona trust and guide you through the process of closing the trust and transferring or distributing all the assets in the trust. A lawyer can help you meet the requirements under Arizona law for dissolving a trust in Arizona and handle all the procedural steps so you leave no stone unturned that may cause legal problems in the future.

Contact Pennington Law, PLLC for a case evaluation with an experienced trust administration attorney to learn more about dissolving a trust in Arizona and obtain the legal guidance and support you need to complete the AZ dissolution process.

What Reasons Would Someone Consider Trust Dissolution?

Individuals and families may want to dissolve a trust for various reasons. Often, significant life changes may encourage such drastic steps as dissolving a trust.  Some of the common reasons to dissolve a trust include the following:

• Wanting to regain control over assets in a revocable trust, such as recovering a piece of real estate you want to sell
• Changes in estate planning objectives due to major life changes, such as marriage, divorce, adoption, or the birth of children or grandchildren
• A change in financial circumstances necessitating the liquidation of trust assets
• Deaths of beneficiaries
• Death or resignation of a trustee or successor trustee
• Acquisition of new wealth, such as buying new real estate or receiving an inheritance
• Moving to a new state
• Changes in family dynamics
• The trust has fulfilled its purpose(s), or it has become impractical for the trust to fulfill its purpose (e.g., a trust set up to fund a loved one’s higher education, and the loved one either completes school or decides not to attend higher education)
• Your financial or personal circumstances have materially changed in a way you did not anticipate when creating the trust
• Changes in federal or state law that warrant the dissolution of the trust, such as not being able to achieve estate tax savings due to a change in law
• The trust depletes its assets
• The trust’s purpose becomes illegal
• The potential costs of administering the trust make it unreasonable to continue it

An experienced estate planning lawyer from our law firm can discuss your unique circumstances with you and explain if dissolving the trust would be in your best interests.

Who Has the Power to Dissolve a Trust in Arizona?

Depending on the trust’s structure, various parties may have the ability to close an Arizona trust. For a revocable living trust, the settlor (creator) of the trust can revoke it. For irrevocable trusts, the trust beneficiaries and the trustee(s) may have the right to revoke the trust if they unanimously consent to revocation, unless the trust document specifically prohibits revocation under certain circumstances.

Courts have the power to dissolve trusts. However, courts typically exercise that authority only when it becomes impractical or illegal to continue operating the trust, circumstances prevent the trust from carrying out its purpose(s), or the trust has fulfilled its purpose.

Can Any Type of Trust Account in Arizona Be Dissolved?

Parties may be able to dissolve various types of trusts in Arizona. However, the party or parties with the authority to dissolve the trust and the process for closing the trust will depend on whether the parties have a revocable or irrevocable trust. Closing a revocable trust typically involves a more straightforward process than dissolving an irrevocable trust.

Can a revocable trust be dissolved?

Dissolving a revocable trust generally only requires the trust creator to follow the details outlined in the trust document for revocation. This generally involves preparing a written statement and notifying the parties involved in the trust, preparing new estate planning documents, or transferring trust property to indicate the intent for them no longer to be included in the trust.

Can an irrevocable trust be dissolved?

Under the Arizona Trust Code, a noncharitable irrevocable trust can be terminated if all the beneficiaries consent, if the court concludes that continuing the trust isn’t necessary to achieve any material purpose of the trust. Even if not all of the beneficiaries consent, the court can still rule to dissolve the trust if the trust could have been modified or terminated under the law and the interests of a beneficiary who did not consent would be adequately protected.

What Are the Steps to Close a Trust in Arizona?

The process of closing a trust in Arizona differs between revocable and irrevocable trusts. For an Arizona revocable trust, a settlor can revoke it at any time, subject to any limitations contained in the trust document. However, when spouses create or fund a trust that contains community property, either spouse may revoke the trust with respect to that spouse’s share of the community property. When two or more settlors create or fund a trust that contains property other than community property, each settlor can revoke the trust for the portion of trust assets contributed by that settlor.

A settlor may revoke a revocable trust by substantially complying with a method provided in the trust document. For example, if the trust agreement requires preparing and notifying relevant parties with a trust revocation declaration, the settlor can follow the stated steps to dissolve a revocable trust.

If the document does not provide procedures for revoking the trust, the settlor can revoke it by preparing a later will or codicil that expressly refers to the trust or specifically devises property that would have passed under the trust document or by any other writing signed by the settlor expressing clear and convincing intent to revoke the trust.

Closing an irrevocable trust in Arizona can only occur through the unanimous consent of all interested parties or by court order. Beneficiaries and trustees of an irrevocable trust can close the trust by entering into a binding nonjudicial settlement agreement to revoke the trust, provided that the agreement does not violate a material purpose of the trust. All beneficiaries of an irrevocable trust must sign the nonjudicial settlement agreement for the revocation to take effect.

Alternatively, any interested party can petition the court to terminate an irrevocable trust. However, courts typically grant petitions to terminate irrevocable trusts only in certain circumstances, such as:

• The trust has fulfilled its stated purpose(s).
• Material circumstances have changed in a manner not anticipated by the settlor.
• The trust no longer serves the purpose(s) expressly stated by the settlor.
• The trust’s purpose(s) has become unlawful.
• Continuing the trust has become impractical, such as due to the depletion of trust assets.

Courts often require consent from the beneficiaries and trustee(s) of the irrevocable trust before agreeing to terminate the trust.

What Happens When a Trust Is Dissolved?

Once a settlor revokes a revocable trust, the trustee must deliver the trust assets as directed by the settlor.

Once you’ve legally terminated a trust, you will need to transfer assets out of the trust. Transferring assets from the trust can become more complicated for titled assets, such as real estate or securities.

An attorney may need to prepare a new deed transferring ownership of titled property from the trust to the new beneficiary.

You should keep copies of all documents related to the trust’s revocation, such as the settlor’s written revocation, a nonjudicial settlement agreement, or a court order, along with documents to transfer ownership of trust property from the trust to the new owner(s).

Contact Our Arizona Trust Attorneys Today

When you no longer need an Arizona trust, obtaining experienced legal guidance can help you dissolve it properly. Contact Pennington Law, PLLC today for a confidential consultation with a knowledgeable trusts and estates attorney to understand the steps to close a trust and receive help to complete the process.