Modification or Termination of a trust Flashcards
Power to revoke or amend
(1) In order to revoke or amend a trust created prior to 2006, the settlor must have reserved the power to do so.
The presumption is reversed under the new UTC. Trusts created after 2005 are now presumed to be revocable, unless the trust specifically provides otherwise.
(2) An attorney-in-fact has the power to revoke or amend a principal’s trust if expressly authorized to do so in the power of attorney.
Method of Revocation
(1) If a trust specifies how it is to be amended or revoked, those steps must be followed.
(2) If the trust is silent as to the method to be followed, the statute allows amendment or revocation only by
a. express modification or revocation contained in a subsequent will or codicil providing clear and convincing evidence of intent;
b. any written statement delivered to the trustee clearly and convincingly setting forth the intent to modify or revoke; OR
c. if the trust has been orally created, an oral statement to the trustee evidencing the intent to modify or revoke.
(3) The three allowable methods of revocation are narrower than the pre-2006 rules.
Methods of Termination
Expiration of Term
Early Termination by Agreement
Early Termination by Consent of the Parties
Merging of Equitable and Legal Title
Merger of Legal and Equitable Title
By Trustee for Trusts > 100K
Expiration of Term/Termination Upon Merger
(1) Expiration of term: If not earlier revoked, a trust terminates at the end of the period created by the trust instrument or upon the happening of some event which, by the terms of the trust, effects a termination.
(4) Termination upon merger of legal and equitable interests: a trust terminates if, during the term of the trust, one person acquires both legal and beneficial title, and there is no incapacity. The legal and equitable interests merge, ending the trust.
Early Termination by Agreement
(2) Early termination by agreement
a. Old rule: a trust could be terminated earlier than provided for in the trust agreement only if
i. all of the beneficiaries have full legal capacity and consent to the early termination AND
ii. the settlor consents or (if settlor is dead) no material purpose of the trust remains to be defeated by early termination
b. New UTA rule: modifies the old rule by requiring court approval under either scenario
Early Termination/Modification w/o Full Consent
(3) Early termination or modification without full consent
a. The new UTC expands the court’s power to modify or revoke even irrevocable trusts, even without the consent of all interested parties.
b. The court can modify dispositive provisions of a trust or terminate a trust due to changes in circumstances not anticipated by the settlor, if the change will further trust purposes.
c. A court may reform even an unambiguous trust to carry out the settlor’s intent if there is clear and convincing proof that a mistake of law or fact affected BOTH
i. the settlor’s intent; AND
ii. the terms of the trust.
Termination by Trustee
(5) Trusts of less than $100K: under the UTC, a trustee may terminate a trust of less than $100K without court approval if the value the trust does not justify the cost of its administration
Winding Up
6) Winding up: A trustee has the powers and duties necessary and appropriate to wind up and settle the trust.
a. If the trust will terminate at a date certain, the trustee should be prepared, and the period for distribution should not be unreasonably long.
b. If a trust terminates unexpectedly because of the premature death of a beneficiary, the trustee may be entitled to a longer period of time for wind up and distribution.
c. The trustee cannot be compelled to transfer trust property to the beneficiary until he has been paid his commission, and he can properly withhold a part of the trust estate reasonably necessary to indemnify him against liabilities which he has properly incurred to a third party.
