An experienced attorney can advise a trustee—or even in some situations the beneficiary—regarding whether it will be beneficial to modify or terminate a trust, and whether the trust continues on for what its original material purpose was. A DC trusts attorney can advise an individual as to whether, in some situations, the termination would be better for the beneficiaries or the size and the nature of trust. But more importantly, an experienced attorney can assist a trustee with the correct procedure for modifying the trust, including whether modification would require approval or whether the modification can be done by a non-judicial settlement with the consent of the qualified beneficiaries.
Terminating Trust Without Court Order
The District of Columbia Uniform Trust Code provisions in Title 19 provide specific guidance for different types of trust and how, when, and if they can be terminated. In addition, often trust provision themselves to include terms for termination.
For example, some trusts provide that the principal of a trust to a child might be distributed in full to the said minor child at a certain age, and then the trust will terminate upon full distribution. In addition, some trusts can be terminated with non-judicial settlements.
Court Termination or Modification
Generally, a trust can terminate or be modified if no material purpose of the trust remains to be achieved or the purpose of the trust becomes unlawful, contrary to public policy, or impossible to achieve. But there are specific procedures in the Uniform Trust Code that define when a court will modify and how a court can modify a trust.
Complementary to that, there are certain circumstances where there is no court approval necessary to modify or terminate a trust agreement. Generally, the code provides for this, and it says specifically in section 19-301:
Any interested person may request the court to approve a non-judicial settlement, however, to determine what the representations provided are and to determine the agreement contains terms and conditions the court would have properly approved.
Effect of the Material Purpose of a Trust
A non-charitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that a modification is not inconsistent with the material purpose of the trust.
Dividing the Trust
Certain trusts are pooled trusts, and the assets are held in one trust for a collective group. It is common for parents to create a trust for benefit of their minor children. Typically, the trust is administered as one trust but for the benefit of any minor children that may be alive at the death of both parents, or the issue of children who have predeceased. In that situation, there is no guarantee that there will be equal distributions to all the trust beneficiaries and typically some parents prefer to leave a trust that allows for the allocation of assets to the child who may need those funds the most. For pooled trusts, it may become beneficial for the trust to be divided into separate trusts for the beneficiaries.