Modification & Termination of Trusts Flashcards
What is modification & when doe sit apply?
Make changes to a trust
Applies only to inter vivos revocable trusts
Requirements for modification
a) Unanimous consent from all beneficiaries
b) Changed circumstances that would frustrate the settlor’s original intention – circumstances that were unknown to the settlor at the time the trust was created
What are the types of modification?
- Administrative deviation
2. Equitable deviation
What is administrative deviation?
i. A change in the procedural terms (administration) of the trusts
What is an example of an administrative deviation?
(a) Trust is set up to give the beneficiaries a certain amount of income on a quarterly basis
(b) BUT, then a beneficiary retires and there is no longer a source of income. Everyone petitions to have the quarterly distribution changed to month
(c) No court will say no modification
What is equitable deviation?
i. Deviation from the substantive terms of the trust
ii. RULE: you’re applying for equitable deviation based on changed circumstances — such a change that the original purpose of the trust would be frustrated if the change wasn’t made
What is an example of an equitable deviation?
(a) A change in tax law that would have been unforeseen by the settlor that would actually frustrate the terms of the trust
(b) It could be problematic if the court reasons that the only reason the change is desired is because the trust will be more beneficial to the beneficiaries
(1) Court will not grant the change if the change is solely for the purpose of benefitting the beneficiaries
What is the Restatement position on medication?
Cannot modify a trust “simply to benefit the beneficiary”
How do you terminate a testamentary trust?
Governed by the Clafin Doctrine
Clafin Doctrine
Must have unanimous consent of all beneficiaries
No material purpose can remain unfulfilled
