Modification and Termination

Question 1

How may a Settlor modify/terminate a trust?

Answer 1

UTC: trusts presumed revocable and amendable unless terms expressly state otherwise.

Traditional rule: must reserve right to revoke or modify.

Question 2

How many the beneficiaries modify/terminate a trust?

Answer 2

1. Settlor and all beneficiaries consent, even if it conflicts with a material purpose; or
2. All beneficiaries consent, and no material purpose would be frustrated.

Ex of purposes precluding termination = distribution at a certain age, preserving property for remainderman, protecting beneficiary from own poor judgment.

Question 3

Can a spendthrift provision be terminated without settlor’s consent?

Answer 3

NO

Question 4

If termination or modification is not available bc not all of the beneficiaries consented, a court may terminate or modify the trust if:

Answer 4

1. the trust could have been modified if all beneficiaries had consented; and
2. the interests of any nonconsenting beneficiaries will be adequately protected.

Question 5

Court may terminate or modify trust if:

Answer 5

1. Unanticipated circumstances threaten the purpose of the trust;
2. Continuation of the trust on its existing terms is impracticable or wasteful; OR
3. The value of the trust is insufficient to justify the cost of administration or to achieve the settlor’s tax objectives.

Also may reform to reflect settlor’s intent if clear and convincing evidence shows settlor’s intent and trust were affected by a mistake!!!

Question 6

How many the trustee modify/terminate a trust?

Answer 6

1. May terminate trust property if less than $50,000 and is insufficient to justify administration costs; must notify beneficiaries.
2. Can combine several trusts into one trust or divide one trust into several trusts, provided doing so does not frustrate any purposes of the trust.