Modification and Termination of Trust

Question 1

Termination of Trust by Express Terms

Answer 1

A trust will terminate automatically in accordance with an express term. Examples:

1) Upon a person’s death
2) When a person reaches a stated age
3) When a person graduates from college
4) A stated date

Question 2

When can the Settlor Modify or Terminate the Trust

Answer 2

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

Some states follow the traditional rule: A trust is irrevocable unless the settlor expressly reserves the power to revoke or modify the trust.

The settlor MAY revoke an irrevocable trust IF they get the written consent of all living persons with vested or contingent interests

Question 3

Modification or Termination by Beneficiaries

Answer 3

The beneficiaries may agree to modify or terminate the trust if all of the following are true:

1) All beneficiaries agree (NOTE: The existence of unborn or unascertainable beneficiaries may make this impossible)

2) All beneficiaries are legally competent.

3) The settlor’s intent is not frustrated.
- The settlor consents, or
- The modification or termination will not impair any material trust purpose (“Claflin Rule”)

Question 4

What provisions in a trust are considered “material purposes” when modifying or terminating a trust

Answer 4

• Support of beneficiary
• Spendthrift provision
• Payment at certain ages
• Payment at certain dates
• Discretionary trust

Question 5

Termination of a Trust 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 of a Trust by the Court

Answer 6

A court may prematurely terminate the trust where the trust’s purpose has been completed or has become illegal or impossible.

Question 7

Modification of a Trust by the Court

Answer 7

If there is a change of circumstances unanticipated
by the settlor, the court may authorize a modification of the trust where necessary to achieve the trust purpose.
- This change may not deprive the beneficiaries of their interests in the income or corpus.

Question 8

Duty of Trustee on Termination of Trust

Answer 8

1. To Wind Up Trust Business
   - The trustee’s powers do not end immediately upon trust termination- they may continue to exercise powers for a reasonable period of time necessary to wind up the affairs of the trust.
2. The trustee must then timely distribute trust property to the appropriate remainder beneficiaries.