MODIFICATION AND TERMINATION OF TRUSTS

Question 1

Modification by Settlor / Court

Answer 1

Settlor can amend the trust, but the power must be reserved in the trust instrument.
Court may amend the trust if there is a change in circumstances (Doctrine of Changed Circumstances) (1) unforeseen to the settlor AND (2) necessary to preserve the trust. However, the Claflin Doctrine states that the purpose of the trust comes first, overriding any specific directions in the trust.

Question 2

Trust Modification Test

Answer 2

(1) Determine the primary intent of the settlor regarding the trust purpose;
(2) look at specific directions in the instrument to determine whether, because of change in circumstances, those specific directions in the trust would now frustrate the primary intent or the trust (if so, the directions can be changed by the court); AND
(3) the court can authorize the invasion of the principal if the income is not enough to carry out the settlors purpose.

Question 3

Termination

Answer 3

Under the majority rule, the settlor has the power to revoke the trust if he expressly reserves the power in the trust instrument. If the trust is irrevocable, the settlor may revoke/terminate if ALL beneficiaries consent. This is often impossible because no one can provide consent for any beneficiary who is a MINOR or INCOMPETENT.