Trusts

• A trust is a separate tax entity that is designed to manage and distribute assets. There are three main parties in a trust. The settlor creates the trust by depositing an amount of assets into the trust. The trustee, usually a bank, manages and distributes the trust's assets. The beneficiary receives distributions from the trust. The distribution schedule, investment goals, and time frame for the trust are determined by the settlor when he creates the trust. They are listed in the trust deed.
  
  

Trust Asset Problems

• The settlor determines the investment goals and asset allocation strategy of a trust when it is created. The trustee is responsible for managing the trust's assets according to this plan. The time span of a trust can last many years and the settlor may die before the trust terminates. As situations change, the settlor's original organization of the trust may no longer be appropriate for its stated goals. In this case, the trustee and beneficiary would want to modify the asset allocation strategy of the trust or terminate the trust.
  
  

Modify Asset Allocation

• When trying to change a trust's asset allocation, the trustee should first examine what is permitted in the trust deed. The trust deed may give enough investment flexibility for the trustee to change asset allocations. If there is not enough flexibility for the trustee, it will need to challenge the trust deed. If the settlor is alive, he can change a revocable trust asset allocation at any point. For an irrevocable trust, both the beneficiary and settlor will need to agree on the change. If the settlor has died and the trust is irrevocable, the asset allocation can only be changed by challenging the deed in court and winning a judgment to change the trust asset allocation.
  
  

Terminate Trust

• Depending on the trust's financial situation, it may make sense to completely terminate the trust. This makes most sense if investment losses caused the trust's assets to be lowered and the total assets do not justify the cost of managing the trust. The assets of a terminated trust will be divided among the trust beneficiaries according to the trust deed. The trustee must get the settlor's permission to terminate the trust or the trust deed must list a provision to terminate the trust. If neither is possible, the trust may also be terminated if the beneficiary challenges the trust deed in court and wins a judgment to terminate the trust.