Legal Definitions - self-destruct clause

A self-destruct clause is a specific provision written into a legal document, most commonly a trust, that outlines a particular condition or event. When this condition or event occurs, the clause dictates that the trust will automatically terminate or cease to exist, without requiring further action from a court or the trustees.

Here are some examples to illustrate how a self-destruct clause works:

• Education Funding Trust: Imagine a grandparent sets up a trust to pay for their grandchild's university education. The trust document might include a self-destruct clause stating that if the grandchild does not enroll in an accredited higher education institution by their 25th birthday, or if they permanently withdraw from all studies for more than two consecutive academic years, the trust will automatically terminate. Upon termination, any remaining funds might be directed to a specified charitable organization.

  This illustrates the term because the grandchild's failure to meet the educational enrollment or continuation criteria acts as the pre-defined condition that automatically triggers the end of the trust's existence and purpose.

• Historic Property Maintenance Trust: A family establishes a trust to perpetually maintain a historic ancestral home, covering costs like repairs, taxes, and insurance. A self-destruct clause could be included, specifying that if the annual maintenance expenses exceed 75% of the trust's total income for three consecutive years, or if the property is sold to a non-family member, the trust will automatically dissolve. The remaining assets would then be distributed among the named beneficiaries.

  This example demonstrates a self-destruct clause because the occurrence of high, unsustainable maintenance costs or the sale of the property to an outsider are the specific conditions that automatically bring the trust to an end, as originally planned in the document.