In most cases, a living trust terminates upon the death of the grantor and its assets are distributed to his or her children. This is not always the case, however, and it is possible for the trust to continue throughout the lifetime of the grantor's children and go to their children when the grantor's children die. That is, the trust goes to the grandchildren of the person who established the trust, when that person and his or her children die.
Alternatively, when the grantor dies, part of the trust can be removed and the proceeds distributed as an educational trust for the grandchildren while the remaining assets continue in the trust. The variations of a living trust are numerous and are dictated by the wishes of its creator who sets them forth in the trust document.
When a living trust is established, much thought must be given to contingencies and written into its framework because the trust cannot be changed if the trustee becomes incapacitated and the named successor has also died or become incapacitated. Although the trust is revocable, it can only be changed by the trustee and not by the successor trustee or anyone else after the grantor's death or incapacity.
If the successor trustee, or anyone designated to receive the trust's assets, dies before the single individual who created the trust, contingencies need to be provided for and stipulated in the trust agreement. Failure to do so can result in lengthy and costly court proceedings, during which time the trust cannot be effectively managed or distributed.
The individual who creates the trust must carefully consider who to name as trustees, as well as those designated as beneficiaries to receive the trust. The grantor is usually the original trustee, and when he or she dies or becomes incapacitated, administration of the trust falls to the successor named in the trust. This is most often one or more of the children. If this named successor trustee has died or become incapacitated, it is beneficial to name multiple successor beneficiaries, who would serve in succession.
The longer the trust is designed to continue, the more thought must go into deciding who will act as trustee. If a trust is created to extend through the life of its creator as well as that person's children, successor trustees must be carefully considered. In this case, with the trust continuing for upwards of fifty years, all possibilities must be carefully planned for. If none of the trustees named in the agreement can function as trustee, a commercial trustee can be named as a default trustee, or the probate court can be petitioned to name a replacement trustee.