Trust Modification + Termination

Question 1

Can a trust have a termination period?

Answer 1

yes, an express trust can have a period of time during which it works.

Question 2

What is the Claflin Doctrine?

Answer 2

Trustee can block premature termination if the trust is still serving some material purpose.

Question 3

How may a trust be terminated when the settlor is still alive?

Answer 3

• a settlor can unilaterally terminate if the settlor expressly provided the right to terminate in the trust documents
• even if settlor did not provide the right to terminate, the settlor can terminate if the settlor and all beneficiaries consent.

Question 4

How is a trust modified if the Settlor is still alive?

Answer 4

• if expressly reserved in the trust document then can unilaterally modify
• if not expressly reserved then all beneficiaries must consent and the modification cannot interfere with the primary purpose.

Question 5

Can a trustee modify a trust unilaterally?

Answer 5

no.

Question 6

What happens if the Settlor is dead - when can a trust be modified?

Answer 6

When there are changed circumstances.

• all beneficiaries must agree
• the changed circumstances must be an unforeseen event that frustrated the purpose of the trust.

Question 7

How can a trustee resign?

Answer 7

With written notice.

Question 8

When can a trustee be removed?

Answer 8

When the trustee has breached a fiduciary duty or grossly mismanaged property.

Question 9

When is it likely that a trustee will be removed?

Answer 9

• trustee became incapable of performing duties due to jail, incapacitation, serious illness
• trustee materially breached a duty
• trustee developed a conflict of interest
• A serious conflict developed between trustee and beneficiary

Question 10

What is the old rule of classifying income and principal?

Answer 10

The life beneficiary was entitled to income while the holder of the remainder was entitled to principal.

Question 11

What is the modern approach to income and principal?

Answer 11

UPAIA

• trustee focuses on the total return to the trust portfolio
• trustee can re-characterize and allocate items as necessary to fulfill the trust purposes
• allocations must be reasonable
• Factors to consider: intent, naturae, duration, identities of beneficiaries, economic conditions, tax consequences.