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trust modification

Photo by Kevin Dooley is licensed under CC 2.0

Trusts serve as valuable estate-planning tools, but can be a bit inflexible at times. Since trust property is actually owned by the trust and not the creator of the trust, a change in circumstances may prompt a desire to change the terms of the trust. Implementing a trust modification, however, requires compliance with certain rules and may not always be easy to do.

General Rules of Trust Modification and Termination

The settlor of a revocable trust can generally modify or terminate the trust whenever he likes. By its very nature, the trust is revocable, and so a trust modification (or termination) is easy to accomplish.

The modification or termination of irrevocable trusts, however, is not as easy. The settlor and beneficiaries of an irrevocable trust can generally implement a trust modification if they all consent. Otherwise, however, the trust cannot be changed without a court order.

A deceased settlor cannot consent to such a change, and so modifying an irrevocable trust after the death of a settlor is therefore generally very difficult, though not impossible, to accomplish.

The Claflin Doctrine states that the law should be very resistant to allowing trust modifications after the settlor’s death. This doctrine provides that the modification—or termination—of a trust is not permissible—even if all beneficiaries agree—if the change contravenes a material purpose of the settlor. (For a detailed discussion of the Claflin Doctrine, see the Missouri Law Review’s “Missouri’s Repeal of the Claflin Doctrine—New View of the Policy Against Perpetuities.”)

Trustee Removal

One important aspect of trust modification is the ability to replace the trustee. Sometimes the trust documents provide that beneficiaries have the ability to remove the trustee, but many do not allow it or simply do not address the matter. Such an ability is particularly important where the trustee has wide discretion in making distributions.

At common law, a trustee could only be removed for a breach of a fiduciary duty. Today a trustee may be removed for more expansive reasons, but doing so usually requires the action of a court. Generally, a trustee may be removed if there is a change in circumstances that would justify the removal or if the removal would benefit all of the beneficiaries. A court must usually determine that the removal would further the purposes of the trust before approving the removal.

See Also:

Creating a Trust
Duties of a Trustee of a Trust

Categories: Estate Planning


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