Beneficiary and Creditor Rights: Modification and Termination Flashcards
Creditors
A B’s creditors may reach T principal or income ONLY when those amounts become PAYABLE to the B or are SUBJECT to their demand
Alienation
A B’s equitable interest in T property is freely alienable (can be sold or used as collateral for a loan)
UNLESS a statute or trust instrument limits this right
Support Trusts
Directs the Tee to pay income OR principal as necessary to support the T B (e.g., maintaining standard of living, healthcare, or child support costs)
Creditors CANNOT reach assets of a support T, except to extent that a PROVIDER OF A NECESSITY to the B can be paid directly by the Tee.
Discretionary Trust
- Tee is given complete DISCRETION about whether to apply payments of income or principal to the Bs
- If Tee exercises his discretion to pay, then B’s creditors have same rights as B, UNLESS a spendthrift restriction exists.
- If discretion to pay is NOT exercised, the the B’s interest CAN’T be reached by his creditors
B of a fully discretionary T LACKS STANDING to CHALLENGE the actions or inactions of the Tee unless there is a CLEAR ABUSE OF DISCRETION
Spendthrift Trust
A spendthrift trust EXPRESSLY RESTRICTS B’s power to voluntarily or involuntarily transfer their equitable interest (can’t give T to anyone)
Creditors usually CANNOT reach the T interest, UNLESS money is owed for:
- child or spousal support
- or to basic necessities providers
- or tax lien holders
Settlor’s Power to Revoke or Amend
If Settlor has power to revoke the T, they also have power to MODIFY or AMEND the T
MAJ RULE- Ts are presumed to be REVOCABLE and AMENDABLE unless there is a writing to the contrary.
Express Revocation in Writing or by Physical Act
Effective if there is INTENT along with the EVENT
Amendments to NONTESTAMENTARY Ts don’t have to be executed with the same formalities of a will
Automatic Termination
- Expires by own terms
- There is no purpose left
or - If purpose has become unlawful
Termination of noncharitable trust
A noncharitable IRREVOCABLE T can be terminated or modified by CONSENT of ALL Bs IF a court concludes that continuance isn’t necessary to achieve any material purpose of the T.
Most common example of a T with unfulfilled material purpose is one that has both income and remainder Bs, BOTH the PRESENT and FUTURE Bs must agree for the T to be terminated prematurely.
- A noncharitable irrevocable T can be ended by CONSENT of ALL Bs AND the S, even if termination is not consistent with a material purpose of the T.
Trustee’s power to Terminate/Modify
Generally, a Tee does NOT have power to terminate the T, unless the T has EXPRESS termination provisions.
Removal of Trustee
A court can remove a Trustee if the purpose of the T would be FRUSTRATED by the Tee’s continuance in office or if the Tee violated a duty.
Court’s power to terminate/modify T
A court can modify the ADMINISTRATIVE or DISPOSITIVE terms of a T OR
TERMINATE it IF
because of circumstances not anticipated by the S, modification or termination would further the purpose of the trust.
Court can also change if there is Inability to administer T effectively
