Modification and Termination of a Trust

Question 1

When can settlor modify or terminate?

Answer 1

1. Settlor can modify/terminate if the trust is revocable
2. In PA, trusts are presumed revocable

Question 2

How to modify or terminate a trust

Answer 2

1. Comply with a method designated in the trust instrument; or
2. if amendment is not forbidden by the trust instrument or by a later writing signed by the settlor that refers to the trust or reconveys trust property

Question 3

Claflin Doctrine

Answer 3

The settlor has fixed the period for the termination of a trust or its purposes have not yet been accomplished (such as holding the corpus until the beneficiary reaches a certain age), the trust cannot be terminated even though all the beneficiaries approve of such termination

Translation:

• Must have unanimous consent of all beneficiaries to terminate; AND
• there can be no material purpose remaining for that trust to serve

Question 4

How can beneficiaires terminate a trust?

Answer 4

Claflin Doctrine

Question 5

Termination in PA:

Answer 5

1. A trust may be modified or terminated by the consent of the settlor and all beneficiaries, even if termination is inconsistent with a material purpose of the trust
2. A trust can be modified or terminated by the consent of all beneficiaries if:
   
   1. Court agrees that modification is appropriate and
   2. wont be at at odds with the purpose and terms of the trust

Question 6

Trustee and Termination

Answer 6

1. Trustee may not terminate, UNLESS the trust gives trustee the express power to do so
2. Trustees may join with beneficiaries to terminate the trust by merging their interests
   
   • The trustee may pass his legal title to the beneficiary
   • The beneficiaries may pass their equitable title to the trustee

Question 7

Termination by Operation of Law

Answer 7

1. Trust corpus is gone
2. All purposes of the trust have been fulfilled
3. Material purpose of the trust has become:
   
   1. Illegal,
   2. Impossible, or
   3. Impracticable

Question 8

No Contest Clause

Answer 8

• Provision in a trust that expresses a directive to reduce or eliminate the share or distribution allocated to a beneficiary if the beneficiary takes some action to frustrate or defeat the settlor’s purpose as expressed in the trust instrument
• Not enforceable contesting beneficiary has reasonable or probable cause to file the contest