Modification and Termination of Trusts

Question 1

When does a trust terminate by its own terms?

Answer 1

Trust terminate automatically:

1. upon expiration of term specified in instrument; OR
2. when all purposes of trust have been accomplished

Question 2

What is the power of Settlor to revoke or modify trust?

Answer 2

Power to revoke GENERALLY includes power to amend.

In many states —> settlor CANNOT revoke or amend unless he expressly reserves that right

Under UTS –> a trust is PRESUMED REVOCABLE unless trust instrument expressly provides otherwise

Question 3

What is the rule w regards to modification or termination by agreement of beneficiaries?

Answer 3

Beneficiaries may compel MODIFICATION or TERMINATION only when:

1. ALL consent; and
2. the MODIFICATION or TERMINATION will not impair any material trust purpose (Example –> such as protecting B from inability to manage property)

THUS –> a spendthrift provision will prevent modification/termination even if ALL consent

Question 4

With regards to modification or termination by agreement of beneficiaries, what does it mean for ALL to consent?

Answer 4

• they must ALL consent, including unborn or unascertained beneficiaries, and even the most contingent beneficiaries
• If they can’t represent themselves, a party must be appointed to represent their interests

Question 5

What is the liability of trustee if all beneficiaries properly consent to termination?

Answer 5

T is NOT liable for accommodating them

Question 6

What is the role of Settlor in termination of an inter vivos trust?

Answer 6

As long as beneficiaries all consent, settlor’s objections are NOT a bar

HOWEVER –>

1. they may be evidence that termination will defeat purpose
2. joinder of Settlor may waive of material purpose that would otherwise block termination

Question 7

Under what two circumstances may court terminate or modify trust?

Answer 7

1. Early termination due to trust’s purposes
   (i) trust’s purpose has become impossible or illegal;
   (ii) trust’s purpose has been completed
2. Doctrine of Changed Circumstances (Equitable Deviation)

Question 8

What are the rules re: doctrine of changed circumstances (equitable deviation)?

Answer 8

In general –> upon showing of changed circumstances unanticipated by settlor, court may deviate from ADMINISTRATIVE TERMS where necessary to achieve trust purposes

NOTE –> may not deprive beneficiaries of their interests in the income or corpus

HOWEVER –> many states allow such changes to achieve primary purpose of trust

Under UTC –> court may modify an administrative or dispositive provision or terminate a trust if, because of changed circumstances, doing so will further the purposes of the trust