Trust Modification and Termination

Revocable trusts

—by settlor

Presumption of revocability

• DE (traditional rule)—trust is presumed irrevocable unless it expressly states otherwise; if power to revoke was mistakenly omitted, Court of Chancery may set aside trust or insert power of revocation as equitable remedy

• Majority or Uniform Trust Code (UTC) rule—trust is presumed revocable unless it expressly states otherwise

Method of revocation

—settlor may amend or revoke by substantial compliance with the trust terms or, if the trust is silent, by manifesting clear and convincing evidence of intent (e.g., will or codicil)

Multiple settlors

—ability of one settlor to amend or revoke turns on whether trust contains community property

Distribution upon revocation

—trustee must deliver trust property as settlor directs

Trustee’s lack of knowledge of revocation

—trustee who does not know that trust has been revoked or amended is not liable for distributions or other actions

Automatic termination

—trust terminates if it is revoked or expires under its terms, no trust purpose remains, or purpose has become unlawful, contrary to public policy, or impossible; in DE, if trust assets remain when beneficiary dies, those assets pass as remainders by implication to beneficiary’s surviving issue

Noncharitable irrevocable trust - Consent Petition

Consent Petition—irrevocable DE trusts may be modified with consent or “nonobjection” of settlor and all fiduciaries and beneficiaries, even if modification violates material purpose

Noncharitable irrevocable trust - Nonjudicial Settlement Agreement (NJSA)

Nonjudicial Settlement Agreement (NJSA)—interested persons can enter binding agreement regarding any matter involving a trust, including interpretation or construction of its terms, as long as modification does not violate material purpose

Judicial modification, reformation, or termination

—court may modify or terminate trust without seeking beneficiary consent (1) because of unanticipated circumstances or inability to manage trust effectively, or trust is uneconomic or (2) to correct mistakes or achieve settlor’s tax objectives

Cy Pres

—if trust becomes unlawful or no longer serves its purpose, Court of Chancery will modify or terminate it in manner consistent with settlor’s intent; codified and expanded in DE to include noncharitable trusts; unlike UTC, DE does not permit court to modify trust for mere excessive funding or wastefulness