Modification and Termination of Trusts Flashcards
Most common way a trust ends or is modified
By its terms
Modificaton/ termination by settlor
a. General rule—
ii. presumed revocable unles express statement that it’s irrevocable by OR.
b. Revocation of irrevocable trust—OR may be able to revoke the trust upon written consent of all living people with vested or contingent interests
i. hard to get them to agree to modifying an irrevocable trust.
Modification/ termination by beneficiaries
BEs may agree to modify or terminate if all the following are true.
1) all beneficiaries agree (direct or virtual representation) 2) all are legally competent 3) OR intent not frustrated (OR consents or Claflin rule)
a. All beneficiaries agree—but hard to do. unborn or unascertainable beneficiaries.
i. Virtual representation is possible—people who would be in a similar positon as someone unborn for example, or someone appointed to look out for their interets
b. All beneficiaries are legally competent, AND
c. Settlor’s intent not frustrated: either
i. OR consents or
ii. modification or termination would not interfere with a material purpose of the trust. “Claflin rule”
d. Examples: the following provisions in a trust are likely to prevent BEs from modifying or terminating
i. support of BE
ii. spendthrift provision
iii. payment at certain age
Modification/ termination by operation of law
a. property exhausted
b. Merger of legal and equitable title
Modification/ termination by court
a. Trust purposes are accomplished
b. Purpose of trust are now are illegal
c. Purpose of trust are now impossible
d. unanticipated circumstances threaten the trust’s purpose
e. continuation of the trust on its terms is impractible or wasteful
f. value of trust is insufficient to justify the costs.
Modification/ termination by trustee
a. Uneconomic trust– if property is worth less than $50 k and insufficient to justify the cost. must give notice to BEs
b. Combination or division of trusts—can combine or divide trusts as long as it doesn’t frustrate purpose/ impair rights of BE.
Duty of trustee upon termination
a. Wind up trust business- TE may continue to exercise powers for a reasonable amount of time necessary to wind up the affairs of the trust.
b. Duty to distribute to remaindermen
