Trust Modification and Termination

Question 1

What is the presumption of revocability with regards to revocable trusts by the settlor?

How doe states determine if a trust is revocable or not when it fails to say it?

Answer 1

A revocable trust can be terminated by the settlor AT ANY TIME
-> AND an irrevocable trust cannot be terminated.

Majority/UTC rule
-> a trust is presumed to be revocable unless it expressly states otherwise
Minority rule
-> a trust is presumed to be irrevocable unless it expressly states otherwise

Question 2

How can the settlor revoke a trust?

Answer 2

Settlor may amend ore revoke according to trust terms, or if silent, by manifesting clear and convincing evidence of intent (.e. will/codicil)

Question 3

Can a trust be revoked if it has multiple settlors?

Answer 3

Ability of one settlor to amend/revoke turns on whether the trust contains community property.

Question 4

How is trust property distributed after revocation?

Answer 4

Trustee must deliver trust property as settlors directs.

Question 5

Is a trustee liable for distributions or other actions when they lack knowledge of revocation of trust or amendment to trust?

Answer 5

No they are not liable if they lack knowledge.

Question 6

When does a trust automatically terminate?

Answer 6

A trust terminates
-> if it is revoked or expires pursuant to its terms
-> no trust purpose remains
OR
-> purpose has become unlawful, contrary to public policy, or impossible

Question 7

Under what situations is a non charitable irrevocable trust either modifiable or able to be terminated?
-> solely by all beneficiaries
-> all beneficiaries and settlor

What happens to the trust property upon revocation?

Answer 7

Solely by all beneficiaries, no material purpose violation
-> trust can be terminated/modified by consent of all beneficiaries if continuance of trust is not necessary to achieve any material purpose
OR
-> that modification is not inconsistent with material purpose

All beneficiaries and settlor, material purpose violation
-> if all beneficiaries and settlor agree, an irrevocable trust may be modified/terminated even if inconsistent with material purpose

Trustee must deliver trust property as settlor directs.

Question 8

When can a court modify/terminate a trust without beneficiary consent?

Answer 8

A court may modify/terminate a trust without seeking beneficiary consent
-> due to unanticipated circumstances or an inability to manage the trust effectively, or if the trust is uneconomic
OR
-> to correct mistakes or achieve the settlor’s tax objectives

Question 9

Can a trustee combine and divide trusts?

Answer 9

Trustee may combine or divide trusts after notice to beneficiaries, and if combining/dividing the trust(s) doesn’t impair the purpose of the trust nor the individual rights of the beneficiaries.

Question 10

Can you revoke a former spouse’s trust interest after a divorce?

Answer 10

The current trend is to treat a spousal interest under a trust similarly to one under a will; it’s revocable after divorce.