Modification and Termination of Trusts Flashcards
When may the trustee or beneficiary modify a trust?
What is the test?
Examples?
Two level test for trustee/beneficiary (not settlor) modifying a trust:
1) Find out the intent of the settlor regarding the trust purpose
2) Look at specific directions in the trust to determine whether, because of changes in the circumstances, those specific directions in the trust would now frustrate the primary intent of the trust.
If SO, then the court can change those directions. The court can also authorize invasion of the principal if the income is not enough to carry out the settlor’s purpose of the trust.
Examples: Sell stock against orders not to if it is to provide dividend income to beneficiaries. Or sell house against directions if the area around it has been rezoned.
Invading Principal: If the trust income is not enough to pay for a retirement home per year, can invade to pay upfront.
When can a settlor terminate a trust?
It is hard!
General Rule: Trusts are irrevocable and unamendable unless that power is expressly reserved in the trust.
Exception: The settlor can terminate the trust if ALL beneficiaries in being consent.
^This is often impossible because no one can give consent for a beneficiary that is a minor or is mentally incompetent.
Note: You do NOT need the permission of children in gestation* or heirs or next of kin [None of these are considered people]
Does a settlor that is trying to terminate an irrevocable and unamendable trust need permission of heirs to the trust?
Beneficiary children in gestation?
No to both, neither are “beneficiaries in being” whose consent is required to terminate a trust.
