Wills, Trusts, and Estates
Modifying or Terminating a Trust
Traditionally in America, a trust can only be modified in one of two circumstances:
- All beneficiaries consent and it is not contrary to a material purpose of the settlor. (Claflin doctrine)
The Claflin doctrine says that a trust cannot be terminated or modified on petition of all beneficiaries if doing so would be contrary to a material purpose of the settlor.
There are four clear situations from this rule that a trust cannot be terminated:
- It is a spendthrift trust.
- The beneficiary is not to receive the principal until attaining a specified age.
- Just requiring waiting so many years does not imply a material purpose.
- It is a discretionary trust.
- It is a trust for the support of the beneficiary.
These are not the only situations though. Any time there is a contrary material purpose, modification or termination is prohibited.
This has since been codified in UTC § 411(b), although not requiring every beneficiary to consent.
Equitable Deviation Doctrine
Circumstances unanticipatedly change and would defeat or substantially impair the accomplishment of the purposes of the trust.
An alternative to modifying a trust is for the trustee to "decant" it by making and giving everything to a new trust, which will then distribute the property differently.
To decant, the state must have a decanting statute. (Illinois and Virginia both do.)
The purpose of decanting is to fix staleness with the first trust.
Removing a Trustee
Under the common law, a trustee can only be removed for a serious breach of trust.
The modern approach has a similar standard, but also allows removing a trustee if there is a substantial change of circumstances or if requested by all qualified beneficiaries, if the court finds it best serves the interest of all the beneficiaries, if it is not inconsistent with a material purpose of the trust, and if a new trustee is available. UTC § 706(b)(4).