Modification_Termination Flashcards
APPROPRIATENESS OF TRUST MODIFICATION
When is it appropriate for a trustee/beneficiary to modify a trust?
Trust modification is appropriate ONLY WHEN the OBJECTIVES of the trust would be DEFEATED or SUBSTANTIALLY IMPAIREDif the trust is NOT modified
Claflin doctrine/American rule: the purpose of a trust comes first, overriding any specific directions in the trust
TWO-PART TEST TO DETERMINE IF MODIFICATION IS ALLOWED
What are the 2 steps that a ct should take to tell if it should allow modification?
STEP 1: Find out the PRIMARY INTENT OF SETTLOR re: trust purpose
STEP 2: Look at specific directions in the trust instrument to determine whether, b/c of changes in circumstances, those specific direction in the trust would NOW FRUSTRATE the primary intent of the trust
IF SO, then those specific directions can be changed by the ct
Ct has the pwr to authorize the invasion of the principal if the income is not enough to carry out the settler’s purpose of the trust
Example: Husband established a trust consisting of his large mansion which was NEVER TO BE SOLD, but which his wife would be allowed to live in during her lifetime, and on her death the house would pass to his daughter. Over the years, the neighborhood changed and became a heavy manufacturing area. All houses in the area except for settlor’s house were torn down and replaced with large factory buildings. Trustee petitioned to have the restriction on sale of the house removed so the house could be sold and the proceeds used to buy the widow a house in a more suitable residential neighborhood.
Should the petition be granted?
Answer: Yes b/c the primary purpose is to have a house to live in (Step 1) and this purpose is frustrated by the specific instructions not to sell the house (Step 2)
TRUST TERMINATION
When can a settlor terminate a trust?
Trusts are HARD to terminate in NY.
They are IRREVOCABLE and UNAMENDABLE, unless the pwr to revoke and amend is EXPRESSLY reserved in the trust instrument.
EXCEPTION: A settlor CAN terminate an irrevocable trust if ALL as in 100% OF beneficiaries consent
OFTEN IMPOSSIBLE b/c NO ONE can give consent for any beneficiary who is a minor or mentally incompetent
NOTE: for the purposes of trust termination, a child in gestation (the Womb rule) is NOT regarded as a person (Cf. RAP)
If a trust gives property to “heirs” or “next of kin” that interest is NOT considered a beneficial interest; THUS, NO NEED to obtain consent from them (as they can’t be ascertained until the decedent’s death)
