Modification and Termination

Question 1

When is it appropriate for a trustee/beneficiary to modify a trust?

Answer 1

It is appropriate ONLY WHEN the objectives of the trust would be defeated or substantially impaired if the trust is NOT modified

Claflin doctrine/American rule: the purpose of a trust comes first, overriding any specific directions in the trust

Question 2

What are the steps that a court should take to tell if it should allow modification?

Answer 2

STEP 1: Find out the primary intent of the settlor for the trust purpose

STEP 2: Look at specific directions in the trust instrument to determine whether, because of changes in circumstances, those specific direction in the trust would NOW FRUSTRATE the primary intent of the trust

IF SO, then those directions can be changed by the court

Court has the power to authorize the invasion of the principal if the income is not enough to carry out the settler’s purpose of the trust

Question 3

When can a settlor terminate a trust?

Answer 3

Trusts are HARD to terminate in NY. They are IRREVOCABLE and UNAMENDABLE, unless the power to revoke and amend is EXPRESSLY reserved in the trust instrument.

EXCEPTION: A settlor CAN terminate an irrevocable trust if ALL beneficiaries in being consent

• *Often impossible because NO ONE can give consent for any beneficiary who is a minor or mentally incompetent
• *NOTE: for the purposes of trust termination, a child in gestation (the Womb rule) is NOT regarded as a person (Cf. RAP)

** If a trust gives property to “heirs” or “next of kin” that interest is NOT considered a beneficial interest; THUS, no need to obtain consent from them (as they can’t be ascertained until the decedent’s death)