Modification or Termination of trusts Flashcards
Termination of a Irrevocable trust
settlor may terminate ONLY
with consent of all living beneficiaries
including holders of future interests
consent of unborn beneficiaries not necessary
guardian for minor beneficiary cannot consent
Termination of a Revocable Inter Vivos trust
amend or revoke in writing
signed by person authorized
acknowledged or witnessed as prescribed for trust creation
unless otherwise specified in the agreement
When can a minor consent to termination of an irrevocable trust
when it is beneficial to the minor
disposition to ‘heirs’ or ‘next of kin’
not a beneficial interest requiring consent
Termination of trust by Merger
sole trustee becomes only beneficiary
trust ceases to exist and he becomes owner of assets
free of trust
sole trustee can be sole Income Beneficiary and not trigger merger
Termination by Operation of Law
- trust purposes have been fully accomplished
- accomplishment is illegal, impossible, impractical
- trust property consumed, destroyed, lost
Name doctrine whereby trust can be terminated without consent of settlor
Claflin doctrine
Claflin Doctrine
- all beneficiaries are legally competent and join action
- all material purposes of trust have been satisfied
allows trust termination without consent of settlor
Who must consent under Claflin Doctrine
All present beneficiaries or potential beneficiaries
If minors or open classes, clafin doctrine is not possible
how to Determine Settlors Material Purpose
all possible evidence trust instrument structure of trust statements of settlor circumstances surrounding creation
Trusts that Cannot be terminated under the Claflin Doctrine
- Spendthrift Trusts
- discretionary trusts
- support trusts
Termination by Natural Expiration
trust in operation for specified number of years
or until occurrence of prescribed event
when period elapses or event occurs,
trust terminates according to its terms
Alienability of Trust Beneficiaries interests
if interest is restricted by a valid discretionary, support, or spendthrift provision
beneficiary cannot assign that interest
Support Interest
Trustee is directed to provide so much income and principal
as necessary for support, education, and maintenance
and no other purpose
Nature of interest is determined by need
creditors cannot attach an interest in a support trust
Discretionary Trust
payment to beneficiary - if at all - at trustees discretion
trustee can prevent beneficiary from receiving anything
if Not tied to a support provision such interest in a discretionary trust is assignable
but has no marketable value until trustee determines distribution is to be made.
is attachable by creditors, but cannot compel trustee to pay
Trustee of a Discretionary trust who makes a distribution to the beneficiary after notification of assignment or attachment
is liable to the assignee or creditor for the amount of the distribution
spendthrift provision
precludes beneficiary from transferring interest in a trust
prevents creditors from reaching interest
income interests in trust are given spendthrift provision by default in NY
unless trust instrument directs otherwise
principal interest may be given spendthrift protection if settlor expressly provides for it
Rights of Creditors and Beneficiaries in Spendthrift Trusts
Rights travel together
a provision that prevents alienation and prevents attachment
creditors cannot reach assets directly
attempts to limit attachment by creditors but not limit alienation is probably not effective
Alienability of Trust interest
so long as not a spendthrift provision
interests are freely assignable
without notice to trustee
unless required by trust instrument
Trustee has No liability to assignee for refusing to honor assignment
if
- no writing evidencing assignment
2. beneficiary contends no assignment has been made
Transfer of interest by will or intestacy
unless trust provides for a gift over in case of beneficiary death
interest can be devised or passes via intestacy
Creditor Attachment and Foreclosure of Trust interst
absent spendthrift provision
creditors can attach and foreclose on a beneficiary interest
trustee must deliver interest to creditor with a valid claim
Under what circumstances can creditors reach beneficiary of a spendthrift trust
- After trustee has made a distribution
- settlor cannot create spendthrift trust himself, or furnish consideration to establish a trust to frustrate creditors
- interest is subject to claims of spouse, ex-spouse, and children
- us govt can attach for taxes
- persons who furnish necessities of life are entitled to reimbursement from a trust
- creditors can levy income beyond that needed for education and support if they have exhausted all other means for satisfying an obligation
- judgement creditors up to 10% of beneficiaries income interest
Excess Income Exception
income beneficiary is entitled to make a gratuitous transfer in excess of $10k to family members
