Modification and termination of Trusts

Question 1

Termination of trusts by own terms

Answer 1

1. trust terminates automatically if
   i. specified term expires
   ii. all purposes of trust are accomplished

Question 2

Settlor’s power to revoke or modify

Answer 2

1. California: settlor may not revoke or modify the trust unless that right is expressly reserved in the trust instrument
2. minority rule: settlor has the power to revoke unless trust instrument expressly provides otherwise
3. power to revoke always includes the power to modify

Question 3

Modification or termination by agreement of beneficiaries

Answer 3

1. beneficiaries can terminate or modify an agreement if:
   i. all beneficiaries consent, and
   ii. modification or termination would not impair any material trust purpose
2. all beneficiaries:
   i. bar: watch out for remote, unborn, or unascertained beneficiaries, and beneficiaries of future interests
   ii. for unborn or unascertained beneficiaries, must be a party appointed to represent their interests
3. no impairment to material trust purposes
   i. where there is unanimous consent, a settlor’s objection is not a barrier, but it may be evidence that modification defeats the trust purpose
   ii. joinder of the settlor is deemed a waiver of material purpose that would block modification
   iii. only material trust purposes matter, insignificant ones yet to be accomplished will not prevent modification, though court may set aside assets to ensure they are accomplished

a spendthrift trust may never be revoked for ex, because material trust urpose is to protect beneficiary from lack of ability to manage property

Question 4

Judicial Power to Terminate or Modify the Trust

Answer 4

1. court can terminate the trust if its purpose is/becomes complete, impossible, or illegal
2. cy pres for charitable trusts
3. doctrine of changed circumstances (equitable deviation)
   i. a court may modify the administrative or management provisions of the trust if necessary to achieve the trust purpose in light of a change in circumstances unanticipated by settlor
   a. may not change beneficiaries or their interests in the income or principal
   ii. requirements: a necessary change due to unforeseen changed circumstances
   a. unforeseeable changed circumstances
   b. deviation is needed to preserve the trust

Question 5

Premature Termination of Irrevocable Trusts

Answer 5

1. settlor and all beneficiaries agree to terminate
2. all beneficiaries agree to terminate, and all material purposes accomplished
   i. all beneficiaries (including guardian ad litem for unborn), material purposes
3. by operation of law for passive trust (no trustee duties) and statute of uses:
   i. applies to private express trust with corpus of real estate that is passive
   ii. beneficiaries get legal title by operation of law
   iii. trust terminates