Modification and Termination of Trust

Question 1

What is the most common way for a trust to terminate?

Answer 1

By its express terms. Express terms include:
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

Can a settlor revoke or amend a trust?

Answer 2

Yes, unless the terms expressely state that the trust is irrevocable.

Even when the trust is irrevocable (under the laws of some states), the settlor may revoke an irrevocable trust upon the written consent of all living person with vested or contingent interests.

Question 3

Can the beneficiary modify or terminate the trust?

Answer 3

Yes, if all of the following are true:
1. all the beneficiaries agree
2. all beneficiaries are legally competent
3. the settlor’s intent is not frustrated (i.e., settlor consents or there is no impairment of a material trust purpose)

Question 4

What are material purposes?

Answer 4

1. support of a beneficiary
2. spendthrift provision
3. payment at certain ages
4. payment at certain dates
5. discretionary trust

Question 5

When does a trust terminate by operation of law?

Answer 5

When the property has been exhausted or if the legal and equitable titles have merged.

Question 6

When may a court terminate a trust?

Answer 6

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

A court may also, upon a change of circumstances unanticipated by the settlor, authorize a deviation from the administrative terms where necessary to achieve the trust purpose.

Question 7

What are the trustee’s duties upon termination?

Answer 7

The trustee may continue to exercise powers for a reasonable period of time necessary to wind up the affairs of the trust

Timely distribute trust property to the appropriate remainder beneficiaries.