Modification and Termination of Trusts

Question 1

When is modification by trustee and/or beneficiaries allowed?

Answer 1

Claflin Doctrine:
Modification by trustee/beneficiary appropriate only when the objectives/purpose of the trust would be defeated or substantially impaired if the trust is not modified.

Question 2

Two-Level Modification Test

Answer 2

1- what is the primary intent of the settlor regarding trust purposes
2- look at specific directions in the trust instrument to determine whether, b/c of changes in circs, those specific directions in the trust would now frustrate the primary intent/purpose of the trust. IF SO then those directions can be changed by the court.

NOTE: court can authorize invasion of the principal if the income is not enough to carry out the settlor’s purpose of the trust

Question 3

ROL re: Trust Termination/Amendment by the SETTLOR

Answer 3

General ROL- trusts are hard to terminate in NY; they are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument.

Exception- A settlor can terminate an irrevocable trust if ALL beneficiaries in being consent; this is OFTEN IMPOSSIBLE b/c no one can give consent for a minor/incompetent beneficiary.

Note:

• for purposes of termination, a child in utero is not regarded as a person whose consent is required
• if a trust gives property to “heirs” or “next of kin” that interest is not considered a beneficial interest and thus no consent need be obtained from them