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)
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.
To decant, the state must have a decanting statute. (Illinois and Virginia both do.)
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).