When a Trust Is Too Small to Justify Its Own Costs

The Practical Threshold for Trust Viability

Trusts cost money to maintain. Tax filings, investment management, record-keeping, and professional fees all add up. When the trust's assets shrink below a level that makes those costs worthwhile, continuing to administer the trust can actually work against the beneficiaries it was designed to help.

This statute gives a trustee a practical exit. If the trust holds under $100,000, or if administrative costs are eating into the principal regardless of size, the trustee can wind things down. The key requirement is notice to the qualified beneficiaries before taking action. And this authority does not extend to an interested trustee, which prevents someone who benefits from the trust from unilaterally shutting it down.

What Happens to the Remaining Assets

When a trust terminates under this provision, the trustee does not simply pocket the funds or distribute them however they choose. The statute requires distributions to be consistent with the purposes of the trust. If the trust was set up for a grandchild's education, the remaining assets should go toward that purpose or to the beneficiary who would have received them.

A court also has the authority to step in independently. If a judge determines that trust assets are insufficient to justify ongoing administration, the court can modify the trust terms, terminate the trust outright, or even remove the trustee and appoint someone new. This gives beneficiaries a safeguard if the trustee does not act on their own.