Modification of Trusts

When I work on essay writing with students, they have the option to choose which subjects to focus on throughout the essays. Somewhere near the top of the list is Trusts. It's a difficult subject that is tested often. A topic that shows up with some frequency is the modification of a trust. A trust can be modified by the settlor, by the beneficiaries, by the court, or by the trustee.

The Settlor: A settlor can modify a trust unless the terms expressly state that the trust is irrevocable. Some states hold that a trust is irrevocable unless expressly stated otherwise, but this is not the rule on the Uniform Bar Exam which follows the Uniform Trust Code.

The Beneficiaries: A trust may be modified upon the consent of the settlor and all beneficiaries even if such modification or termination conflicts with a material purpose of the trust. If only the beneficiaries consent without the consent of the settlor, the trust may still be modified but only if no material purpose of the trust would be frustrated by the modification. If there is no material purpose frustrated and all beneficiaries consent to termination of the trust, the trustee must upon termination of the trust distribute the trust property to the beneficiaries.

The Court: Assume here that modification by the beneficiaries alone is not available since not all beneficiaries have consented to modify the trust. A court may still modify if the trust could have been modified had all beneficiaries consented (no material purpose would have been frustrated) and if the interests of any non-consenting beneficiaries will be adequately protected. In addition, a court may also modify a trust if unanticipated circumstances threaten the purpose of the trust, continuation of the existing trust is impracticable, or if the value of the trust is insufficient to justify the cost of administering the trust.

The Trustee: A trustee can modify (terminate) a trust if the trust purpose is less than $50,000 and the amount is insufficient to justify the cost of administering the trust as long as the trustee provides the beneficiaries with notice. A trustee can also modify a trust by combining several trusts into one trust or by dividing one trust into several trusts provided that doing so does not frustrate any purpose of the trusts or impair the rights of beneficiaries. Notice to the beneficiaries is required of such an intent to combine or divide trusts but obtaining consent from the beneficiaries is not.