Modifying and Terminating a Trust

Modification of trusts

1. modification by the settlor
2. modification by the court
   

The settlor can modify the trust if the settlor expressly reserved the power to modify the trust. The settlor can also modify the trust if the settlor has the power to revoke the trust.

Modification by the court for charitable trusts can be accomplished under the court's cy pres power (assuming general charitable intent.)

There can also be modification of private trusts under the doctrine of changed circumstances (deviation). The court can change the administrative or management provision of the trust. With deviation, the court is NOT changing the beneficiaries. The court may allow for a certain high-return type of investment activity that was not previously allowed because of changed circumstances such as a change in regulatory condition or the economy.

There are 2 requirements necessary for the court to apply the doctrine of changed circumstances. (1) unforeseen circumstances and (2) necessity (deviation is needed to preserve the trust).

Termination of trusts
The settlor has the power to revoke, under the majority rule, when the settlor expressly reserved the power to revoke to revoke in the trust instrument. Under the minority rule, the settlor has the power to revoke, unless the trust is made irrevocable.

There are 3 ways an irrevocable trust can terminate prematurely. The first way is if the settlors and ALL the beneficiary agree to terminate. "ALL" beneficiaries means that you must account for contingent remaindermen. Guardian ad litem (a guardian appointed to represent those parties to a suit who are incapacitated by infancy or otherwise) must be appointed to represent them.

The second way is if ALL the beneficiaries agree to terminate AND all material purposes have been accomplished. Equity will not see a trust continue to carry out a minor or insignificant purpose. You don't need a $100 million trust to accomplish a $100 purpose. With regard to spend thrift trusts, discretionary trusts, and support trusts, there is always a remaining purpose left, and thus you can never terminate these (unless the settlor is alive). Mandatory trusts are the only ones you can terminate. In California, you can terminate a trust if it has an uneconomically low principal because the trustee fees will eat up most of the principal.

The third way an irrevocable trust can terminate is through operation of law (passive trust and the Statute of Uses). The Statute of Uses comes into play when you have a private express trust with a corpus of real property, and the trust is "passive." The trustee isn't doing anything. The beneficiaries get legal title by operation of law, and thus the trust terminates. Not all jdxs recognize the Statute of Uses.