3. Modification and Termination of Trusts Flashcards
When is trust modification by the trustees and/or beneficiaries appropriate?
Only when the objectives of the trust would be defeated or substantially impaired if the trust is not modified.
Two-Level Modification Test:
(1) Find out the primary intent of the settlor regarding trust purposes.
(2) Look at specific directions in the trust instrument to determine whether, because of changes in circumstances, those specific directions in the trust would not frustrate the primary intent of the trust; IF SO, then those directions can be changed by the court.
When may the court authorize the invasion of the capital?
If the income is not enough to carry out the settlor’s purpose of the trust.
Are trusts revocable and/or amendable by the settlor?
They are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument.
What is the one exception that allows a settlor to terminate an irrevocable trust?
A settlor can terminate an irrevocable trust if all beneficiaries in being consent
(This is often impossible because no one can give consent for any beneficiary who is a minor or who is incompetent.)
In 2000 Nancy created a valid irrevocable lifetime trust: “Income to Nancy for life, and on her death the principal goes to Nancy’s daughter Oria; but if Oria is not then living to Oria’s then living children.” Nancy now wants to terminate the trust, and Oria (who has two (2) minor children) agrees.
Should the court allow the trust to be terminated?
No, because no one can consent for Oria’s minor children.
In 1999 Jim created a valid irrevocable trust: “Income to Jim for life, then to his daughter Susan for life, and on Susan’s death the principal shall go to Susan’s heir(s) at law.”
Can Jim now terminate the trust if Susan agrees?
Yes, because the remainder gift is to Susan’s heirs and that is not considered a beneficial interest requiring consent.
