The surprisingly complicated process of terminating a giftrust (or gift trust)
In the 1980s and early 1990s, Twentieth Century Mutual Funds (now American Century Investments) offered a unique investment vehicle intended to allow an individual to create an irrevocable trust as a gift for someone other than their spouse. American Century Investments appropriately named this product a giftrust (or gift trust), and at their peak, hundreds of thousands of people gifted these trusts.
As Steven Goldberg noted, in the 80s and 90s,
American Century “was one of the hot fund
firms. It specialized in small-company stocks
with accelerating earnings and sales, many of
them tech stocks. The firm’s momentum
strategies of zeroing in on stocks outpacing
the market worked best with stocks of smaller
companies. The funds were stellar performers,
for me and many other investors.”
Through 1995 – the last year that American Century offered giftrusts (gift trusts) – the funds outperformed the S&P 500 and, by all accounts, seemed like a stellar investment for a grandfather, doting aunt, or family friend looking to give a loved one a nest egg that was sure to grow over the life of the trust.
The minimum holding period for giftrusts was 18 years and in many cases longer. Giftrusts (gift trusts) were set up as irrevocable trusts, meaning that in theory, you have to wait for the time specified by the trust for a payout. Assuming that the trust continued to grow and outperform the market, this wasn’t such a bad deal.
Unfortunately, the fund did not continue to perform as it did in the early 90s. Through the late 90s, the tech bubble collapse, and the early 2000s, the fund was volatile at best and underperforming at worst.
Fortunately, if the grantor of the trust is still living, the process to terminate a giftrust is fairly straightforward and requires filling out a few forms.
On the other hand, it’s a damned if you do and damned if you don’t scenario for giftrust beneficiaries when a grantor has passed away. Your options are limited to either waiting for the termination date in the trust or hiring an attorney to help you navigate the Kansas City courts.
Under the terms of the trust, when the grantor has passed away, the beneficiaries are generally not entitled to the trust documents or the funds held in the trust until the termination date of the trust. For some beneficiaries, this might mean waiting into their late thirties or early forties before gaining access to funds – well beyond the prime point in life when those funds would be the most useful for a growing family.
It also gets complicated if there are additional contingent beneficiaries of the funds in the trust. Fortunately, Missouri enacted a statute in 2016 giving courts the power to terminate an irrevocable trust when the grantor has passed away. While the statute generally allows for the revocation of an irrevocable trust, it unfortunately, requires filing an action in state court (generally, Jackson County, Missouri where these gift trusts are administered) and getting a court to agree to terminate the trust pursuant to the statute. The statute, Mo. Rev. Stat. § 456.4-411B, requires that all adult beneficiaries, including contingent beneficiaries, consent to the trust’s termination.
If you can get all beneficiaries to sign consent forms, you can hire an attorney to file the case in Jackson County, Missouri. The courts in Jackson County are particular about the language required to protect both the beneficiaries and any unknowns or unborns who might be beneficiaries of the trust.
Fortunately, you can generally get the trustee’s consent to terminate the trust and get a stipulated judgment filed and signed without a hearing.
If you are thinking about trying to terminate your American Century Giftrust, our firm has experience navigating the process. We answer all your questions, guide sensitive conversations, and provide recommendations that clarify and simplify.
Please contact us for a free consultation – quickly followed by an upfront and transparent price quote.