Modification or Termination of trusts

Question 0

Termination of a Irrevocable trust

Answer 0

settlor may terminate ONLY
with consent of all living beneficiaries
including holders of future interests

consent of unborn beneficiaries not necessary
guardian for minor beneficiary cannot consent

Question 1

Termination of a Revocable Inter Vivos trust

Answer 1

amend or revoke in writing
signed by person authorized
acknowledged or witnessed as prescribed for trust creation
unless otherwise specified in the agreement

Question 2

When can a minor consent to termination of an irrevocable trust

Answer 2

when it is beneficial to the minor

Question 3

disposition to ‘heirs’ or ‘next of kin’

Answer 3

not a beneficial interest requiring consent

Question 4

Termination of trust by Merger

Answer 4

sole trustee becomes only beneficiary
trust ceases to exist and he becomes owner of assets
free of trust

sole trustee can be sole Income Beneficiary and not trigger merger

Question 5

Termination by Operation of Law

Answer 5

1. trust purposes have been fully accomplished
2. accomplishment is illegal, impossible, impractical
3. trust property consumed, destroyed, lost

Question 6

Name doctrine whereby trust can be terminated without consent of settlor

Answer 6

Claflin doctrine

Question 7

Claflin Doctrine

Answer 7

1. all beneficiaries are legally competent and join action
2. all material purposes of trust have been satisfied

allows trust termination without consent of settlor

Question 8

Who must consent under Claflin Doctrine

Answer 8

All present beneficiaries or potential beneficiaries

If minors or open classes, clafin doctrine is not possible

Question 9

how to Determine Settlors Material Purpose

Answer 9

all possible evidence 
trust instrument
structure of trust
statements of settlor
circumstances surrounding creation

Question 10

Trusts that Cannot be terminated under the Claflin Doctrine

Answer 10

1. Spendthrift Trusts
2. discretionary trusts
3. support trusts

Question 11

Termination by Natural Expiration

Answer 11

trust in operation for specified number of years
or until occurrence of prescribed event

when period elapses or event occurs,
trust terminates according to its terms

Question 12

Alienability of Trust Beneficiaries interests

Answer 12

if interest is restricted by a valid discretionary, support, or spendthrift provision

beneficiary cannot assign that interest

Question 13

Support Interest

Answer 13

Trustee is directed to provide so much income and principal
as necessary for support, education, and maintenance
and no other purpose

Nature of interest is determined by need

creditors cannot attach an interest in a support trust

Question 14

Discretionary Trust

Answer 14

payment to beneficiary - if at all - at trustees discretion

trustee can prevent beneficiary from receiving anything

if Not tied to a support provision such interest in a discretionary trust is assignable
but has no marketable value until trustee determines distribution is to be made.

is attachable by creditors, but cannot compel trustee to pay

Question 15

Trustee of a Discretionary trust who makes a distribution to the beneficiary after notification of assignment or attachment

Answer 15

is liable to the assignee or creditor for the amount of the distribution

Question 16

spendthrift provision

Answer 16

precludes beneficiary from transferring interest in a trust
prevents creditors from reaching interest

income interests in trust are given spendthrift provision by default in NY
unless trust instrument directs otherwise

principal interest may be given spendthrift protection if settlor expressly provides for it

Question 17

Rights of Creditors and Beneficiaries in Spendthrift Trusts

Answer 17

Rights travel together
a provision that prevents alienation and prevents attachment
creditors cannot reach assets directly

attempts to limit attachment by creditors but not limit alienation is probably not effective

Question 18

Alienability of Trust interest

Answer 18

so long as not a spendthrift provision
interests are freely assignable
without notice to trustee
unless required by trust instrument

Question 19

Trustee has No liability to assignee for refusing to honor assignment
if

Answer 19

1. no writing evidencing assignment

2. beneficiary contends no assignment has been made

Question 20

Transfer of interest by will or intestacy

Answer 20

unless trust provides for a gift over in case of beneficiary death
interest can be devised or passes via intestacy

Question 21

Creditor Attachment and Foreclosure of Trust interst

Answer 21

absent spendthrift provision
creditors can attach and foreclose on a beneficiary interest
trustee must deliver interest to creditor with a valid claim

Question 22

Under what circumstances can creditors reach beneficiary of a spendthrift trust

Answer 22

1. After trustee has made a distribution
2. settlor cannot create spendthrift trust himself, or furnish consideration to establish a trust to frustrate creditors
3. interest is subject to claims of spouse, ex-spouse, and children
4. us govt can attach for taxes
5. persons who furnish necessities of life are entitled to reimbursement from a trust
6. creditors can levy income beyond that needed for education and support if they have exhausted all other means for satisfying an obligation
7. judgement creditors up to 10% of beneficiaries income interest

Question 23

Excess Income Exception

Answer 23

income beneficiary is entitled to make a gratuitous transfer in excess of $10k to family members