Modification and Termination

Question 1

General Modification and termination

Answer 1

A trust will terminate automatically upon the expiration of the term specified in the instrument or when all of the purposes of the trust have been accomplished (or become unlawful).

Question 2

Settlor’s modification and termination

Answer 2

UTC Rule: A settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.

Traditional Rule: In some states, a trust is irrevocable unless the settlor expressly reserves the power to revoke or modify the trust.

A settlor may revoke an irrevocable trust upon written consent of all living beneficiaries.

Question 3

Beneficiaries modification and termination

Answer 3

A trust may be terminated or modified upon the consent of the settlor and all the beneficiaries, even if the modification or termination conflicts with the trust purpose.

A trust may be terminated or modified with ONLY the consent of all beneficiaries (including those unborn and unascertainable) if no material purpose of the trust would thereby be frustrated under the Claflin Rule.

Question 4

Material Purposes for modification and termination

Answer 4

• support of beneficiary
• spendthrift provision
• payment at certain ages
• payment at certain dates
• discretionary trust

Question 5

Termination by Operation of Law

Answer 5

A trust will terminate by operation of law if the property has been exhausted or if the legal and equitable titles have merged.

Question 6

Termination by the Court

Answer 6

If not all beneficiaries consent ,a court may terminate or modify a trust if 1) the trust could have been modified if all beneficiaries have consented, and 2) the interests of any nonconsenting beneficiaries will be adequately protected.

Also:

• unanticipated circumstances that threaten purpose,
• continuation of the trust on its existing terms is impracticable or wasteful,
• the value of the trust is insufficient to justify the cost

Question 7

Termination by the Trustee

Answer 7

Trustee can terminate if trust property is less than $50k and amount is insufficient to justify administration.

Trustee can combine trusts or divide trusts if it frustrates no purposes or impairs rights. No consent needed, just notice.