Judicial Modification of Trust

Question 1

Why would a court modify a trust?

Answer 1

A court may need to modify a trust instrument in order to conform the trust to the settlor’s wishes or intent.

Question 2

What are the two types of judicial trust modification?

Answer 2

Deviation and Cy Pres Doctrine

Question 3

What is Deviation?

Answer 3

Trustee’s and beneficiaries can request that the court permit a deviation from administrative provisions in the trust instrument. Generally, a court will permit a deviation if the purposes of the trust:

1. have been satisfied;
2. Have become unlawful; OR
3. Are impossible to carry out.

Question 4

What is Cy Pres Doctrine

Answer 4

If it becomes unlawful, impossible, or impracticable to carry out the purpose of a charitable trust, the cy press doctrine allows the court to modify the terms of the charitable trust “as near as possible” to the original intention of the settlor in order to prevent the trust from failing.

Question 5

When is the Cy Pres doctrine applicable?

Answer 5

The Cy Pres doctrine is applicable only if:

1. Property is placed in a trust for a charitable purpose that becomes unlawful, impossible, or impracticable to carry out; AND
2. The settlor manifested a general charitable intent to devote the property to charitable purposes (the majority of courts presume charitable intent).

Question 6

Generally, what constitutes evidence of a general charitable intent?

Answer 6

The absence of a revert clause is evidence of the settlor’s general charitable intent. (if there is a reverter clause, the court would revert the property to specified parties.)

Question 7

How can a trust be terminated?

Answer 7

Generally, a trust can be terminated if:

1. The trust is revoked or expires pursuant to its terms.
2. The material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out;
3. The settlor and all of the beneficiaries unanimously agree to terminate
4. All of the beneficiaries agree AND no material purposes of the trust remain;
5. Termination will further the purposes of the trust due to circumstances that were not foreseen by the settlor; OR
6. The court or trustee determines that the value of the trust property is too low to justify the cost of administration.

Question 8

What happens to trust property if a trust is validly terminated?

Answer 8

If a trust is validly terminated, the trust property generally vests in the beneficiaries who may distribute the property in any manner the choose.

However, the trustee may retain a reasonable amount of the trust property to cover the debts, expenses, and taxes.