Modification and Termination of Trusts

Question 1

When are modifications to a trust by trustees or beneficiaries appropriate?

Answer 1

Modifications are appropriate ONLY WHEN the objectives of the trust would be defeated or substantially impaired without modification.

(i.e., the purpose of the trust comes first! Claflin doctrine)

Question 2

What is the two-part modification test?

Answer 2

1. What is the primary intent of the Settlor for the trust?
2. Would the specifc directions in the trust, given changed circumstances, now frustrate the primary intent of the trust?

IF SO, the directions may be changed by the court!

Question 3

NY QUESTION

What is the NY general rule on trust termination by the Settlor?

Answer 3

Trusts are hard to terminate; they are irrevocable and un-amendable unless expressly reserved in the trust

(BUT see exception!)

Question 4

What is the exception to the general rule that a Settlor cannot terminate a trust?

(What are the three notes of gloss on this?)

Answer 4

A Settlor CAN terminate an irrevocable trust IF all beneficiaries in being CONSENT

(N.B. This can be difficult because nobody can give consent for any beneficiary who is a minor or incompetent)

(N.B. For purposes of counting beneficiaries in this case, a child in gestation does not count!)

(N.B. If a trust gives property to heirs or next of kin, that interest is not considered a beneficial interest and so NO consent is needed from them!)