How to End an Irrevocable Trust - YouTube

Hi, Lee Phillips here.

I want to talk about how to end an irrevocable trust

and that's the trust that

is not your standard estate planning trust

that's a trust that you've set up

to handle life insurance

an irrevocable life insurance trust an ILIT

it is a trust that you've set up for your children under

Section 2503 of the IRS code

it is a trust most likely though

that has resulted after Dad dies.

When Dad dies, his living revocable trust becomes irrevocable

and you now are dealing with an irrevocable trust

not a revocable trust.

The trust just changed its nature.

It became its own entity.

You had to get a tax ID number for it.

Now mom and dad they may have a trust where one of them dies

and the other one goes on as a revocable trust

but when they're both dead

dead or when dad's single, he's dead

then it becomes an irrevocable trust.

Or you could have a shelter trust

a marital trust, and a shelter trust,

A/B, remember that sort of stuff?

Lawyers don't count too high

so they have trust A and they have trust B

B is an irrevocable trust.

How do you end a an irrevocable trust?

however you got the irrevocable trust

Well it has its own tax ID number.

That means it's filing a 1041 tax return.

You've been getting K-1s.

There's been this income tax aspect to it.

Now you don't want to ever have the trust collect income

because if it actually pays income taxes

it has to file a tax return, 1041

but we want it to be a zero on the bottom of that

we want it to get rid of all of its income

because the tax rate's horrific

but

when we finally want to end it

all you do is take all the assets out of the trust

and the trust will naturally do this because it says

that the assets are to be divided into four shares

and give them one share, giving each one of the four kids.

So when all the assets have been distributed

the trust doesn't own anything

it files a final tax return

and officially the trust is dead.

So all the assets are taken out of the trust

it files its final tax return

and the trust goes away.

Now your mom and dad's trust

after they die it could go on for years

and years and years.

I'm sure that my children will do the irrevocable trust for years

because it has all kinds of real estate in it

rental real estate

and

so they're just gonna leave the rental real estate in there

and collect the rent I would assume

I don't think they're greedy enough that they're gonna take it all out and sell it next week

why kill the goose that lays the golden eggs, so to speak

but

when it's finally all settled out

then it files a final tax return

and the trust goes away

it ends.

So the end of an irrevocable trust

requires usually a filing of a tax return

and disgorgement or

getting rid of all the assets in the trust.

When those two things are done

not in that order

get rid of the assets and THEN file a final tax return

when it's all wrapped up

then the trust just goes away.

There's no official ceremony that gets rid of the trust.

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