Can You Dissolve a Trust? (Probate Code section 15403)
People often think that once a trust is created, it is locked in forever. That is not always true. In California, a trust can sometimes be dissolved, but the answer depends on the type of trust, the language of the trust document, and who is asking to end it. The most important question is whether the trust is revocable or irrevocable.
What Is a Trust?
A trust is a legal arrangement where one person or entity, called the trustee, holds and manages property for the benefit of others, called beneficiaries. The person who creates the trust is usually called the settlor, trustor, or grantor. Trusts are commonly used to avoid probate, manage property, protect beneficiaries, plan for incapacity, and distribute assets after death. But trusts are not all the same. Some are easy to change or dissolve. Others are much harder.
The Type of Trust Matters
A revocable trust is usually the easiest type of trust to dissolve. Under California law, a trust is presumed to be revocable unless the trust document expressly says it is irrevocable. (Prob. Code § 15400). This means that if the person who created the trust is still alive and has capacity, that person may generally revoke or dissolve the trust. California Probate Code section 15401 explains how a revocable trust may be revoked. The settlor may follow the method provided in the trust document. Prob. Code, § 15401. If the trust document does not make that method exclusive, the settlor may also revoke the trust by a signed written instrument delivered to the trustee during the settlor’s lifetime. Prob. Code § 15401; (Haggerty v. Thornton (2024) 15 Cal.5th 729, 735). Overall, the contents of the trust documents matter the most. If the trust says exactly how it must be revoked, that method should be followed carefully. (Haggerty v. Thornton (2024) 15 Cal.5th 729, 733).
An irrevocable trust is different. As the name suggests, an irrevocable trust is not meant to be easily changed or terminated. Once created, it usually cannot be revoked by the settlor alone. But “irrevocable” does not always mean impossible to dissolve. Under California Probate Code section 15403, if all beneficiaries of an irrevocable trust consent, they may petition the court to modify or terminate the trust. Prob. Code, § 15403. However, the court still considers whether continuing the trust is necessary to carry out a material purpose of the trust. Id. If ending the trust would defeat an important purpose, the court may refuse to dissolve it unless the reasons for termination outweigh the interest in accomplishing that purpose. Id. So even if everyone agrees, court approval may still be needed.
What If the Trust Has Multiple Settlors?
Some trusts are created by more than one person, often spouses. That can make dissolution more complicated. If a trust was created by two settlors, one person may not always be able to revoke the whole trust alone. The answer depends on the language of the trust. In Estate of Khan, a husband and wife created identical trusts together during their marriage. (Estate of Khan (1985) 168 Cal.App.3d 270, 271). Later, the husband attempted to revoke the trust on his own during divorce proceedings. Id at 272. The California Court of Appeal held that the husband could not unilaterally revoke the trust because the trust language showed that revocation required mutual action by both settlors. Id at 274. This is why families should not assume that one person can dissolve a trust simply because they helped create it. The trust language controls.
What Happens After a Trust Is Terminated?
Dissolving a trust does not mean everything disappears instantly. Even after termination, the trustee may still have authority to wind up the trust’s affairs. Prob. Code § 15407. These may include paying final expenses, resolving debts, filing taxes, selling property, preparing a final accounting, and distributing assets. California Probate Code section 15410 explains how trust property is distributed after termination. Prob. Code § 15410. For example, if the settlor revokes the trust, property may be distributed as directed by the settlor; if all beneficiaries consent to termination, distribution may occur according to their agreement; or the court may direct distribution in a manner that best conforms with the settlor’s intent. Id.
Why Trust Dissolution Can Become Complicated
Trust disputes often involve more than legal paperwork. They may involve things like family conflict, disagreements over property, unequal expectations, trustee misconduct claims, or disputes over whether the trust still serves its intended purpose. For example, Julie may want to dissolve the trust and sell the family home. Her brother may want to keep the property because of sentimental value. Another sibling may believe the trustee is spending too much on maintenance and fees. In those situations, dissolving the trust may require more than a simple signature. The family may need court involvement, beneficiary consent, or a detailed review of the trust document.
Example
Julie’s parents created a family trust years ago. The trust held the family home in Sacramento, several bank accounts, and investment assets. At the time, the trust made sense. It allowed Julie’s parents to plan for the future and decide how property would pass to their children. Years later, circumstances changed. Julie’s father passed away. Julie’s mother moved into assisted living. The family home became expensive to maintain. Property taxes, insurance, repairs, and trustee fees were draining trust funds. Julie and her siblings no longer wanted to keep the house in the trust. Julie wondered: can the family dissolve the trust and distribute the property? The answer depends on the trust.
Conclusion
Yes, a trust can sometimes be dissolved in California. A revocable trust is generally easier to dissolve because the settlor usually retains the power to revoke it during life. Prob. Code, §§ 15400–15401. An irrevocable trust is harder to dissolve, but termination may still be possible through beneficiary consent, court approval, changed circumstances, or fulfillment of the trust’s purpose. Prob. Code §§ 15403, 15407; (Wogman v. Wells Fargo Bank & Union Trust Co. (1954) 123 Cal.App.2d 657, 661). The most important step is to carefully review the trust document. Whether a trust can be dissolved often depends on the language of the trust, whether the trust is revocable, who created it, whether beneficiaries agree, and whether termination would conflict with the settlor’s intent.
If you're facing questions about dissolving, modifying, or administering a trust in California, the attorneys at the Underwood Law Firm, P.C. can review your trust and help you understand your options. Contact Underwood Law Firm today to schedule a consultation and get clarity on the best path forward for your family and your assets.
