Trust Modification, Revocation and Termination

Question 1

When are trusts revocable?

Answer 1

1. Common Law: trust is presumed to be irrevocable unless trust says otherwise
2. UTC (majority): trust is presumed to be revocable unless trust says otherwise

Question 2

How do you modify an irrevocable trust?

Answer 2

(a) By the consent of all beneficiaries if a court concludes that the continuance of the trust is not necessary to achieve any material purpose of the trust or that modification is not inconsistent with a material purpose of the trust.

(b) By the consent of all beneficiaries and the settlor even though the modification or termination is inconsistent with a material purpose of the trust.

Question 3

How to modify a revocable trust when there are unanticipated changes?

Answer 3

A court may modify a trust if events that were unanticipated by the settlor have occurred and the changes would further the purposes of the trust. To the extent possible, the modification must be made in accordance with the settlor’s probable intention, and the court need not seek beneficiary consent to make the modification.

(E.g. The change in the neighborhood to a rowdy, commercial district with numerous multi-family dwellings was unanticipated. Arguably, strict adherence to the trust terms as written would frustrate Testator’s purpose of providing Daughter with a “comfortable residence.” )

Question 4

Can you modify a revocable trust when the trust loses its ability to be administered effectively?

Answer 4

Yes, a court may modify the terms of a trust that relate to the management of trust property if continuing the trust on its existing terms would be impracticable, wasteful, or impair the trust’s administration.

Question 5

In a revocable trust, how do you distinguish between modification when the seller is still alive vs. dead?

Answer 5

1. If settlor is alive > he can unilaterally modify.
2. If seller is dead, can modify in two situations:
   (a) ALL beneficiaries agree to modification consistent with material purpose of trust, OR
   (b) An unforeseen event has frustrated purpose of trust (equitable deviation)

Question 6

How do you revoke a trust?

Answer 6

1. By substantial compliance with a method provided in terms of the trust.
2. If no method is provided in the trust, then:
   (a) By a later will / codicil that expressly refers to the trust or specifically devises property that otherwise would have passed according to the terms of the trust; OR(b) By any other method manifesting clear and convincing evidence of the settlor’s intent.

Question 7

How do you terminate a trust?

Answer 7

1. Expiration: an express trust can expire at the end of a state term.
2. Material purpose: trust will terminate automatically if the purpose has been satisfied.
3. Claflin Doctrine: A trustee can block premature termination if the trust is still service some material purpose.

Question 8

Termination by a living settlor

Answer 8

a settlor may terminate the trust if all beneficiaries are in existence and all agree to the termination.

Question 9

Termination by beneficiaries after settlor dies

Answer 9

Generally, even an irrevocable trust can be terminated if both the income beneficiaries and the remaindermen unanimously consent and if there is no material purpose of the trust yet to be performed. (Claflin)