06 Apr Can I dissolve an irrevocable trust to get my house out?

Q. I feel I was taken advantage of to the tune of $3,500 when I set up a trust. I have simple assets and will leave equal shares to my two children. Now I can’t seem to get my house deed out of the trust without going back to the same attorney and paying another $300. Who can I turn to help me dissolve this trust?
— Trying to plan

A. We are sorry you had such a negative experience with respect to your estate and asset planning. Your situation is a cautionary tale for others.

Before finalizing legal documents, it is important to understand the purpose and consequences of the plan.

There are many different types of trusts used to achieve different goals, said Richard I. Miller, co-chair of the elder law department at Mandelbaum Salsburg in Roseland.

For example, some individuals create revocable trusts to avoid probate, while others establish trusts in their wills to provide for minor children or loved ones with special needs, he said.

Irrevocable trusts are often used to protect assets, including the home, in the event long-term nursing care is required, Miller said.

“Conveying assets to an irrevocable trust generally begins the five-year look back period for Medicaid purposes, provided the trust is restricted from using the assets for, or returning assets to, the individual who created the trust — the ‘grantor,’” Miller said.

He said by transferring assets to a trust, control of the assets is given to another individual, called the ‘trustee,” he said.

“While this arrangement may protect assets in the event long-term care is required, it comes with the risk that the trustee may not always act how the grantor wants,” he said. “For example, the grantor cannot independently sell the house owned by the trust or compel the trustee to purchase a replacement residence.”

This may lead to conflict between the grantor and trustee. Because the trust is irrevocable, it could be difficult and expensive to unwind, he said.

For this reason, Miller said, it is critical to choose a trustee who will work with and honor the wishes of the grantor.

“It is also advisable to make sure the trust includes language that protects the interest of the grantor by allowing the grantor to replace the trustee and change beneficiaries,” he said. “Thought should be given to whether a single or multiple trustees should be appointed, each option having its own pros and cons.”

Like any other service, it is important to research qualified professionals and compare pricing structures.

But in general, the cost referenced is within the industry standard, especially if the fee includes the preparation of a will, power of attorney, health care proxy, advanced directive and deed, he said.

“Most importantly, whoever is retained for estate and asset planning should provide clear, understandable and thoughtful advice so the client has the information necessary to make an informed decision how to proceed, mindful of the risks and benefits inherent to the plan, including the option of how and whether to dissolve the trust,” Miller said.

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This story was originally published on April 6, 2021. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.