Modification and Termination Flashcards
IN GENERAL
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 have become unlawful, contrary to
public policy, or impossible to achieve.
BY TERMS OF TRUST
The most common way for a trust to end is by its express terms. A trust will terminate automatically upon the expiration of the term specified in the instrument.
BY THE SETTLOR
Under the UTC, a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable. However, some states, even some that have adopted the UTC, follow the traditional rule, which provides that a trust is irrevocable unless the settlor expressly
reserves the power to revoke or modify the trust.
Revocation of Irrevocable Trust
Under the law of some states, the settlor may revoke an irrevocable trust upon written consent of all living persons with vested or contingent interests
With Settlor’s Consent
A trust may be terminated or modified upon the consent of the settlor (or the settlor’s agent, conservator, or guardian) and all beneficiaries,
even if the modification or termination conflicts with a material purpose of the trust
Without Settlor’s Consent
A trust also may be terminated or modified on the consent of only all beneficiaries (that is, without consent of the settlor), but only if no material purpose of the trust would thereby be frustrated (“Claflin
Rule”).
Distribution of Property and Liability of Trustee
If the trust is terminated by agreement of all beneficiaries, then the trustee must distribute the trust property as agreed by the beneficiaries. Where all beneficiaries consent to termination, the trustee is not liable if the trustee accommodates them by distributing the trust assets even if the termination violates a material purpose of the settlor.
Role of Settlor in Terminating Inter Vivos Trust
As long as the beneficiaries have a right to terminate, the settlor’s objections are not a bar (but may be evidence as to whether termination would defeat trust purposes). However, joinder of the settlor may be deemed a waiver of a material purpose that would otherwise block termination.
BY OPERATION OF LAW
A trust will terminate by operation of law if the property has been exhausted or if the legal and equitable titles have m
BY THE COURT
If termination or modification is not available because not all of the beneficiaries consent, a court may terminate or modify the trust if: (1) the trust could have been modified if all beneficiaries had consented; and (2) the interests of any nonconsenting beneficiaries will be adequately protected. Additionally, a court may terminate or modify a trust if:
* Unanticipated circumstances threaten the purposes of the trust
* Continuation of the trust on its existing terms is impracticable or wasteful; or
* The value of the trust is insufficient to justify the cost of administration or to achieve the settlor’s tax objectives
Uneconomic Trust
In some states, a trustee can terminate a trust if the trust property is less than $50,000 and the amount is insufficient to justify the cost of administration, as long as the trustee provides the qualified beneficiaries
with notice.
Combination and Division of Trusts
Absent contrary terms in the trust, the trustee can combine several trusts into one trust or divide one trust into several trusts, provided doing so does not frustrate any purposes of the trusts or impair the
rights of any beneficiary. The trustee is not required to obtain the consent of the qualified beneficiaries prior to combining or dividing trusts, but the trustee must provide them with
