¶ 1601
Overview
Scope of the chapter. An irrevocable trust is irrevocable only in the sense that the settlor has given up the unilateral power to undo it. The law has always allowed some trusts to be changed or ended after they were created, and the modern statutes have widened those routes considerably. This chapter examines the methods by which the terms of an existing trust can be altered, or the trust brought to an end, by the persons interested in it or by a court. It opens Part IV of the book, which deals with changing the trust. Decanting, the exercise of a trustee's distribution power to move property into a new trust, is the subject of chapters 17 and 18 (see infra chs. 17–18). Nonjudicial settlement agreements as a general device are treated in chapter 19, the migration of a trust to a new situs in chapter 20, and reformation, merger and division in chapter 21 (see infra chs. 19–21). This chapter covers the remaining ground: termination and modification by consent, judicial modification for changed circumstances, the special rules for charitable and uneconomic trusts, the nonjudicial consent statutes of the leading trust jurisdictions, the tax consequences of a modification, and the position in the international trust jurisdictions.
Three routes. A trust's terms can be changed in three ways. The first is consent: the beneficiaries, alone or with the settlor, agree that the trust should end or be altered, and the law gives effect to their agreement. The second is judicial: a court, on the petition of a trustee or beneficiary, modifies the trust because circumstances the settlor did not anticipate have made its terms an obstacle to its purposes, or because the trust has become too small to justify its cost, or because a charitable purpose has failed. The third is a power conferred by the instrument itself, held by a trustee, a protector or a trust director. Powers of the third kind are discussed in chapters 8, 12 and 17 (see supra chs. 8, 12; infra ch. 17). This chapter concentrates on the first two, which exist whatever the instrument says and which the drafter must plan around.
The organizing question. Every rule in this area answers the same question in a different way: how far the settlor's intention, fixed at the moment the trust was created, should continue to govern property that now belongs in equity to the beneficiaries. American law answers that the settlor's material purposes bind the beneficiaries until they are accomplished. English law, and the offshore statutes that follow it, begin from the opposite premise that adult beneficiaries who together own the whole beneficial interest may call for the property. The Uniform Trust Code adopts the American answer and then relaxes it in several directions: it allows the settlor and beneficiaries together to override a material purpose, it presumes that a spendthrift clause is not by itself a material purpose; it also gives courts a broad power to modify for unanticipated circumstances. Delaware and South Dakota have gone further and allow the settlor and beneficiaries to modify by written consent without any court. See infra ¶ 1670.
Plan of the chapter. Paragraph 1610 sets out the material purpose doctrine. Paragraph 1620 examines termination and modification by consent under section 411 of the Uniform Trust Code. Paragraph 1630 deals with the beneficiaries who cannot or will not consent: minors, unborn and unascertained persons, and objectors. Paragraph 1640 covers judicial modification for unanticipated circumstances, and ¶ 1650 the charitable cy pres power and the termination of uneconomic trusts. Paragraph 1660 places reformation, tax modification and combination and division in the scheme, leaving their detail to chapter 21. Paragraph 1670 compares the nonjudicial consent statutes of Delaware, South Dakota and Wyoming. Paragraph 1680 examines the tax consequences of a modification, and ¶ 1690 the position in the international trust jurisdictions, closing with drafting guidance and model provisions.
Why the design of the trust matters. A drafter cannot prevent all modification. Section 105(b)(4) of the Uniform Trust Code makes the court's power to modify or terminate under sections 410 through 416 a mandatory rule that the terms of the trust cannot displace. Unif. Trust Code § 105(b)(4) (amended 2010); see supra ch. 5. A settlor can, however, shape what modification will look like. The instrument can state the trust's purposes so that a court knows which are material. It can say whether the spendthrift clause is meant to be a material purpose. It can give a protector or a trust director a power to amend that makes a petition unnecessary. It can also exclude the nonjudicial consent statutes where the governing law permits. Each of these choices is examined below, and ¶ 1690 collects them in a checklist.