Modification and Revocation of Trusts under Trusts and Estates
Modification and Revocation of Trusts
Overview
A trust is a legal arrangement where one party (the settlor or grantor) transfers property to another party (the trustee) to hold and manage for the benefit of a third party (the beneficiary). Trusts can be revocable or irrevocable and can be modified or revoked under certain conditions.
Revocation of Trusts
Revocable Trust:
Most commonly, a trust is revocable during the settlor’s lifetime, meaning the settlor can amend or revoke (cancel) the trust entirely. This gives the settlor flexibility to change beneficiaries, terms, or even terminate the trust and reclaim the assets.
Irrevocable Trust:
Generally, irrevocable trusts cannot be revoked or amended by the settlor after creation, except under very limited circumstances, often requiring court approval or consent of beneficiaries.
Modification of Trusts
Modification refers to changing the terms of a trust without completely revoking it. The possibility and process depend on the type of trust and the governing law.
Revocable trusts can be modified easily by the settlor during their lifetime.
Irrevocable trusts may be modified:
By the settlor only with court approval (rare).
By beneficiaries and trustees if the modification does not frustrate the trust’s purposes.
Under statutory provisions, such as the Uniform Trust Code (UTC), courts may allow modification to correct mistakes, resolve ambiguities, or adapt to changed circumstances.
Grounds for Modification and Revocation
By Settlor (for Revocable Trusts)
The settlor has broad power to revoke or amend.
By Consent of Beneficiaries
Some jurisdictions allow modification or termination if all beneficiaries consent and the modification does not violate a material purpose of the trust.
By Court Order
Courts may modify or terminate trusts in cases such as:
Changed circumstances making the original terms impracticable or wasteful.
To achieve the settlor’s probable intent.
To correct mistakes or ambiguous terms.
When the trust’s purposes have been fulfilled or become impossible.
Legal Principles
Material Purpose Doctrine:
Courts generally will not modify or terminate a trust if it interferes with the settlor’s material purpose in creating the trust.
Doctrine of Cy pres (when dealing with charitable trusts):
Courts may modify charitable trusts to carry out the settlor’s general charitable intent when the original purpose is impossible or impracticable.
Relevant Case Law Examples
1. Harrell v. Andrews (1945)
Issue: Whether a settlor can revoke or modify a trust created by him.
Holding: The court held that a revocable trust can be revoked or amended by the settlor at any time before death, as long as the settlor complies with the terms of the trust agreement or statutory requirements.
Significance: Established that revocable trusts give the settlor control over modification and revocation.
2. In re Estate of Duke (1963)
Issue: Modification of an irrevocable trust by court order due to changed circumstances.
Holding: The court allowed modification of an irrevocable trust to adapt to changed circumstances, emphasizing that modification is proper if the original terms become impractical or defeat the trust’s purposes.
Significance: Recognized the equitable power of courts to modify irrevocable trusts when justified.
3. Restatement (Second) of Trusts § 331 (1959)
Principle (widely followed):
A trust can be terminated or modified if all beneficiaries consent and the modification does not conflict with a material purpose of the settlor.
Significance: This principle balances settlor intent with beneficiaries’ interests and practical concerns.
4. Uniform Trust Code (UTC) Section 411 and 412 (Modern Statutory Framework)
Section 411 allows modification or termination of a trust by consent of all beneficiaries if consistent with material purposes.
Section 412 allows court modification if circumstances were not anticipated by the settlor and modification furthers the trust’s purposes.
Significance: Provides statutory guidance to modern courts on when modification or termination is permissible.
5. In re Estate of Dallavalle (1987)
Issue: Whether a trust could be revoked despite language indicating irrevocability.
Holding: The court ruled that clear language expressing irrevocability is binding, and revocation was not permitted absent explicit authority.
Significance: Highlights the importance of explicit terms in trust instruments.
Summary
Revocable trusts provide flexibility; the settlor can modify or revoke them at will.
Irrevocable trusts generally cannot be modified or revoked without court approval or beneficiary consent, unless circumstances justify it.
Courts balance settlor intent, beneficiary interests, and practical considerations when deciding on modifications or revocations.
Modern statutory frameworks like the Uniform Trust Code provide clearer rules for modification and termination.
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