Modification and Termination of Trusts Flashcards
When does a trust terminate?
Generally, a trust will terminate automatically:
(1) upon the expiration of the term specified in the trust instrument; or
(2) when all purposes of the trust have been accomplished or have become unlawful, contrary to public policy, or impossible to receive.
Under the UTC, when can a settlor revoke or modify a trust?
Under the UTC, a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.
Under the traditional rule, when can a settlor revoke or modify a trust?
The traditional rule provides that a trust is irrevocable unless the settlor expressly reserves the power to revoke or modify the trust.
When can beneficiaries terminate or modify a trust
A trust may be terminated/modified by the beneficiaries if:
(1) the settlor and all of the beneficiaries unanimously agree to terminate/modify; or
(2) all beneficiaries consent (i.e., without consent of settlor) if:
- the modification will not interfere with a material purpose of the trust
- no material purpose for the trust remains
what are indicators of material purposes that may prevent beneficiaries from terminating a trust?
(1) distributing property to a beneficiary at a designated age (which shows a purpose to keep property out of the beneficiary’s hands until the designated age;
AND
(2) a spendthrift provision (which shows a purpose to protect the beneficiary from creditor’s claims)
When may a court modify or terminate a trust if not all beneficiaries consented to modification/termination?
(1) the trust could have been modified if all beneficiaries had consented; and
(2) the interests of any non-consenting beneficiaries will be adequately protected
Generally, when may a trust be terminated?
(1) the trust is revoked or expires pursuant to its terms;
(2) the material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out;
(3) the settlor and all of the beneficiaries unanimously consent to terminate;
(4) all of the beneficiaries agree and no material purpose for the trust remains;
(5) terminate will further the purpose of the trust due to a change in circumstances that were not foreseen by the settlor; OR
(6) the court or trustee determines that the value of the trust property is too low to justify the cost of administration
What are other circumstances that allow a court to modify or terminate a trust?
court may modify or terminate a trust if:
(1) unanticipated circumstances threaten the purposes of the trust;
(2) continuation of the trust on its existing terms is impractical or wasteful;
(3) the value of the trust is insufficient to justify the cost of administration or to achieve the settlor’s tax objectives
When can a court reform the terms of a trust?
A court can reform the terms of a trust to reflect the settlor’s intent IF A MISTAKE IN THE TERMS is show by CLEAR AND CONVINCING evidence.
What happens when a trust is validly terminated?
if a trust is validly terminated, the trust property generally vests in the beneficiaries who many distribute the property in any manner they choose.
however, the trustee may retain a reasonable amount of the trust property to cover debts, expenses, and taxes.
What is equitable deviation (changed circumstances)?
Equitable deviation is a doctrine under which the court authorizes the trustee to deviate from the administrative terms of the trust because:
(1) unanticipated circumstances have arisen or become known; and
(2) compliance with the terms of the trust would defeat or substantially impair accomplishment of trust purposes
When is the Cy Pres Doctrine applicable?
The Cy Pres doctrine is applicable only if:
(1) property has been placed in trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out;
AND
(2) the settlor manifested a gen
When is the Cy Pres Doctrine applicable?
The Cy Pres doctrine is applicable only if:
(1) property has been placed in trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out;
AND
(2) the settlor manifested a GENERAL CHARITABLE INTENT to devote the property to charitable purposes (a majority of courts presume general charitable intent)
ABSENCE OF A REVERTER CLAUSE is evidence of the settlor’s general charitable intent. However, if there is a reverter clause, the court will likely revert the trust property to the parties specified in the reverter clause when it becomes unlawful, impossible or impracticable to carry out that purpose.
