Modification and Termination of Trusts

Question 1

Trust Modification by Trustee(s) and/or beneficiaries

Answer 1

(1) it is appropriate only when the objectives of the trust would be defeated or substantially impaired if the trust if not modified
(2) the purpose of the trust comes first, overriding any specific directions in the trust. This is called the Claflin Doctrine.

Question 2

Two-Level Modification Test

Answer 2

(1) Find out the primary intent of the settlor regarding trust purposes
(2) look at specific directions in the trust instrument to determine whether, because of changes in circumstance, those specific directions in the trust would now frustrate the primary intent of the trust; IF SO, then those directions can be changed by the court.

-court can order invasion of the principal if the income is not enough to carry out the settlor’s purpose of the trust

Question 3

Trust Termination by the Settlor

Answer 3

A settlor can terminate an irrevocable trsut if:

• all beneficiaries in being consent; this is often impossible because no one can give consent for any beneficiary who is a minor or who is mentally incompetent
• beneficiaries must be born alive to count; children in gestation don’t count for this purpose.

-if a trust gives property to heirs or next of kind, that interest is not considered a beneficial interest and thus no consent need be obtained from them (as they cannot be ascertained until decedent’s death)