Modification & Termination

Question 1

Generally

Answer 1

Trust automatically terminates at expiration of trust term specified in instrument.

It also terminates when all purposes of the trust have been accomplished or if they become unlawful.

Question 2

By the Settlor

Answer 2

Settlor can revoke or amend a trust UNLESS it expressly says it is irrevocable.

Upon revocation, trustee must distribute property in accordance with settlor’s instructions.

Question 3

By the Beneficiaries

Answer 3

Trust may be terminated or modified upon consent of settlor and all Bs even if modification/termination conflicts with material purpose.

Can be terminated/modified by all B’s (both current and potential) if no material purpose of the trust would be frustrated.

Material purpose = look to settlor’s intent or consider the following:

(1) Designated age
(2) Preserve property for remainder man
(3) Provide for successive enjoyment of life tenant and remainderman
(4) Presence of spendthrift provision

If terminated, trustee must distribute as Bs agreed. Doing so is not a violation of fiduciary duties. Note trustee will also not be liable if all Bs consent and it is a material purpose.

Question 4

By the Court

Answer 4

Parties may seek modification/termination based on supervisory function of the court if (1) trust could have been modified if all B’s had consented, and (2) the interests of any non consenting B’s will be adequately protected.

Typically allowed if unanticipated circumstances threaten the purpose. Or if continuation would be impracticable or wasteful.

Question 5

By the Trustee

Answer 5

Can terminate if uneconomic (less than $50,000 and insufficient to deal with cost of administration).

Combination & Division of Trusts: trustee can combine so long as it doesn’t frustrate any purposes of the trusts or impair rights of B.