pm~ER
OF BENEFICIARIES TO TERMINATE TRUSTS
JOHN WEEKS
POWER OF BENEFICIARIES TO TERMINATE TRUSTS
According to the Restatement of the Law of Trusts,
second "a trust • • • is a fiduciary relationship with respect to property, subjecting the person by whom the title
to the property is held to equitable duties to deal with
the property for the benefit of another person, which
arises as a result of a manifestation of an intention to
create it."l
The person who creates the trust isr the set-
tlor; the person who holds the property in trust is the
trustee; the one who benefits by the holding of the trust
property (res) is the beneficiary while the res of the
trust is the trust property.
These are basic concepts
which are to some degree and at different periods are involved in the creation of a trust.
The subject of this paper shall begin after the creation of a valid trust by will, commonly called a testamentary trust, and concentrate on the power of beneficiaries
of a testamentary trust to terminate that trust after it
has come into existence.
The discussion shall center upon
the termination of the trust in certain situations which
were bought out by both the Restatement and
Scot~Trusts.
These topics are (1) where there are successive beneficiaries;
(2) Spendthrift trusts; (3) Postponment by enjoyment
1
2
of sole beneficiary; (4) Trusts for support and discretionary trusts; (5) Where the beneficiary is under a disability
which ceases; (6) Compromise Agreements; (7) Disclaimer by
beneficiary of a Spendthrift Trust; (8) Partial Termination of the trust; (9) Consent of Beneficiaries and Settlor.
To begin with in Restatement of Trusts, Second
it is stated:
§
337,
"Except as stated in Subsection (2), if all
the beneficiaries of a trust consent and none of them is
under an incapacity, they can compel the termination of the
trust.
(2) If the continuance of the trust is necessary
to carry out a material purpose of the trust, the beneficiaries cannot compel its termination."
The idea of ma-
terial purpose of the trust permeates the law of trust to
the roots and has rendered this subject of the law of
trusts somewhat unbendable.
The reason is that the ma-
terial purpose of the trust is not always readily ascertainable and may depend on the type of testamentary trust
created and the needs of the beneficiary.
The idea of
material purpose is also cited by Scott who phrases his
rule "if all (beneficiaries) consent and are sui juris,2
can compel its termination of its continuance is not necessary to carry out a material purpose for which it is '
created. "3
3
1.
Where there are Successive Beneficiaries
The trust for the successive beneficiaries is a trust
payable to one beneficiary for life and on that beneficiary's death the principal is payable to another.
This type
of trust is divided into two categories for the discussion
of power to terminate; one, where the purposes are accomplished and two, where the purposes are not accomplished.
The general rule is that where the settlor had no other
purpose in creating the trust other than to allow successive beneficiaries to enjoy the property, the beneficiaries
may terminate if both consent and neither are under any
.
.
4
l.ncapacl.ty.
In Budin v. Levy,
5
.
the court allowed the compromise of
I
controversy on the trust for successive beneficiaries saying that the material purpose of the testator was not defeated by the agreement.
The trust for successive beneficiaries has also been
allowed to be terminated where the life beneficiary acquires interest of the beneficiary entitled to the remainder.
This is also the position taken by the Restatement which
says "if the interest of the remainderman is accelerated
in some way, or if a third person acquires the interests
of both, tpe beneficiary who thus becomes the sole beneficiary ca:n compel the :t ermination of the trust. ,,6
The second situation, where the purposes have not been
accomplished demands a different result.
Where the intent
4
of the settlor was not merely to allow the beneficiaries to
enjoy property successively.
If this is the intent of the
testator, the beneficiaries cannot terminate even though
they all consent.
A leading case in this area is Adams v . Link.?
In
that case testatrix provided for the residue of her estate
to be disposed of by trust.
There were two beneficiaries
Pringle and Foeppel who were to receive the income for
life, then at their death the corpus to the New York Assoc.
for the Blind.
Tringle predeceased Foeppel.
The benefici-
aries agreed to terminate and compromise the trust.
court refused to terminate the trust.
The
The court set out
certain requirements, "(1) that all the parties to the interest write in seeking termination; (2) every reasonable
ultimate purpose of the trust's creation and existence has
been accomplished; (3) that no fair and lawful restriction
imposed by the testator will be nullified or disturbed by
such a result."S
th~
In denying the request for termination
court said that the second and third conditions had
not been met.
The failure of the petitioner to establish
that the material purpose had been accomplished caused the
trust to continue.
Also, the trust for successive benefici-
aries will not be terminated if the trust has spendthrift
provisions or where the trustee has active duties of management for the life tenant. 9 The reason for no termina-
5
tion in this later situation is that the spendthrift has as
its material purpose the protection of the life benefici,ary .
2.
Spendthrift Trusts
In the spendthrift trust can be found the most per-
sistent attitude of the courts in failing to permit termination of the trust.
This brings about the question.
is a spendthrift trust?
What
According to the Restatement:
A trust in which by the terms of the trust
or by statute a valid restraint on the
voluntary and involuntary transfer of the
interest of the beneficiary is imposed is
a spendthrift trust. 10
Whenever the trust is inalienable , the trust will not be
terminated while such inalienable interest still exists. ll
It should be noted that there are two types of restraint;
restraint on alienation and on anticipation.
The restraint
on anticipation is not a restraint on alienation , therefore
not a spendthrift provision. 12 (G~isweld says that this
J;.-/-;. c.:f-,,,,,-
disLrib~~ieft
has been the source of confusion in Pennsyl-
vania) •
In Tree v.' Rives, 13 the petitioner is seeking to have
the court force payment ' out of the corpus of the trust because of insufficient funds.
net income
of ~'· the
The court allowed only the
trust paid out saying:
"A court is not
authorized by construction to secure for the beneficiary
greater financial advantages than those provided in the
6
will and intended by the testator."
In New York, there , is a statute on restraint of alienation of express trusts. This attitude was best expressed
in Matter of Vought. 14 In that case the testator ' s will
expressly denied the beneficiary the right to alienate the
principal of the trust. , The remainderman, Charles Vought,
had assigned his interest for payment of separation agreements.
The court said in voiding the assignments:
The purpose of statutes relating to indestructible trusts was to permit a
testator to make secure provisions for
the support and maintenance of an improvident person for life and to make
it beyond the reach of such person or
his creditors to defeat the purposes
of the trust by alienating and squandering the principal. 15
The court reached similar results in Matter of Knass 16 and
Matter of Thompson's Trust 17 stated the statute against
alienability represents ' a manifestation of public policy
and to protest ,t he beneficiary from his own improvidence.
In Kirkland v. Mercantile Safe Deposit & Trust Co., 18
a Maryland court reached the same conclusion as the New
York Courts.
In that case daughters of testatrix bought
suit to terminate what the court acknowledged was a spendthrift trust.
The court in refusing to terminate the trust
cited Griswald on Spendthrift Trusts.
"When the interest
of one or more beneficiaries is subject to a restraint on
alienation • • • the courts have held in such cases that
7
the trust may not be terminated, even though all the beneficiaries are sui juris and join in the termination.,,19
A California court in Leonardini v. Wells Fargo Banks,20
states the predominate California stand on spendthrift
trusts.
In an action by life beneficiary and remainderman
to invade the corpus, the trial court determined that the
main purpose of the trust was to protect Mrs. Leonardini,
even against herself.
The court said, "It certainly vio-
lates the spirit of the spendthrift provisions • • • by
consenting to an invasion
of the corpus,,,21 in denying the
request to terminate the trust.
In another situation concerning spendthrift trusts is
where the life beneficiary acquires the equitable remainder.
Again the question is asked.
May he terminate the trust?
In Matter of Higgins,22 the remainder interest and
life interest were both in life beneficiary.
!
The benefici-
ary claimed a merger of' interests and therefore that was
I
grounds for termination, of the trust.
The trust carne within
the New York statute making trusts of this type inalienable
and therefore its termination was precluded.
"So long as
the trust purpose as a practical matter can be accomplished
it should be.,,23
In Internal Revenue Service v. Ellis Estate~4 a federal
court applying Pennsylvania law said that ordinarily the
estates would merge however "The Pennsylvania courts
8
jealously uphold spendthrift trusts and see to it that the
will of the testator is given effect as he expressed it." 25
Therefore, the dominate opinion seems to be that spendthrift trusts are practically impregnable.
The main reason
is that the material purpose of the settlor demands the
continuation of the relationship.
Since the spendthrift
trust is to protect the beneficiary against his own improvidence by giving him an interest he cannot transfer, to
terminate would be to subvert the intent of the settlor.
3.
Postponement of Enjoyment of Sole Beneficiary
The problem here is that the entire trust interest is
vested in a sole beneficiary with income being paid out
currently.
However, the principal is to be paid at a cer-
tain time or at a certain time thereby postponing the enjoyment.
A typical example is A to B in trust to pay income
to C till age 21, then on C reaching age 21, the principal
to C.
Again, the beneficiary, for his own reasons is ask-
ing for the termination of the trust.
The Restatement of
Trusts in stating its solution:
If by the terms of the trust it is provided that the trust shall not terminate
until a certain time, or until the happening of a certain event, the trust
shall not terminate until the time or
event has arrived. As long as the purposes have n~~ been accomplished, no
termination.
.
In England, the prevailing rule as announced by Saunders
9
v. VQutier 27 in which an English court granted the sole
beneficiary the termination of the trust which by its own
t e rms the principal was not to be paid to him until he attained the age of 25.
The English courts feel that the di-
rection to withhold the property from the beneficiary is
inconsistent with absolute rights of property given him by
the will.
In the United States, the decisions are to the contrary.
The leading case in this area and a landmark case
in the law of trusts is Claflin v. Claflin. 28 In that case
Claflin gave one-third of the residue of his estate to his
son to pay $10,000 at age 21 years; $10,000 at age 25 years,
and the balance when he is the age of 30 years.
to have the trust terminated as being void.
He seeks
The court re-
jected the Saunders case saying:
• • • no provision requiring trustee to
hold and manage the trust property until
the beneficiary reached age 21 is necessarily void • • • since the purposes of
the testator is not .c arried out. 29
Here the intent of the testator is plain that neither the
income nor the principal should now be paid.
The Claflin
rule is the majority rule in America that an active dry
,
trust may not be terminated until the material purpose of
the. settlor is carried out.
In California, Moxley v. Title Insurance Co. 30 states
the prevailing rule.
In that case plaintiff sought to
10
terminate a trust which provided for her till age 35.
The
plaintiff alleged hardship and ability to handle her own
estate.
The court denied her request saying that the trust
was still an active trust which the testatrix intended to
provide for her daughter.
Judge Traynor dissented asking
the court to adopt the rule of Saunders.
In a more recent case, a California court in CrockerCitizens Nat'l Bank v. Younger,3l refused to permit a de.viation simply because the beneficiary requested otherwise
where the main purpose of the trust is not threatened and
no emergency exists.
In Hamilton v. Robinson,32 a Missouri case, a trust
for the son of Robinson till age of 21 was upheld as a
clear manifestation of the testator's intent and to terminate would thwart the wish and intention of the testor.
. . Ba nk , 33 the court up h e ld a trust
. Tomson
h
A1 so 4n
v. Un40n
that postponed the principal and cited the Restatement. 34
In Matter of Cannistra,35 a Pennsylvania court used
classic language saying, "no rule regarding wills is more
settled than the great General Rule that the testator's intent, if it is not unlawful, must prevail."
In that case
the court upheld a trust for nephew of testator till age
of 30.
Continuing:
One possessed· of testamentary capacity,
who makes a will in Penn., may die with
the justifiable conviction that the
11
courts will see to it that his dispositions, legally made are not departed
from • • • or improperly defeated by
agreement between th~ge upon whom he
bestowed his bounty.
Therefore, owner of property can do what he likes with
it; the question is not of logic but of broad considerations
of policy.
The intent of the testator usually controls.
It makes no difference if the beneficiaries are sui juris
and they all consent.
4.
Trusts for Support and Discretionary Trusts
The question involved is when the trust is created for
support of the beneficiary or the trustee has discretion to
from time to time pay over to the beneficiary.
The ultimate
question again is what is the intent of the settlor.
Ac-
cording to Scott on Trusts, the beneficiary cannot compel
the termination even though he is the sole beneficiary and
.
..
. 37
~s su~
Jur~s.
In Washington, Abbottv. Everett Trust and Savings Bank 38
adopts the rule promulgated by the Restatement on Trusts
337 comment M.
§
In that case plaintiff was the beneficiary
of a trust of $100 per month, with discretion in the trustee
to pay as she deems necessary for her welfare.
The court
. refused to terminate the trust saying that it would thwart
.
the decedent's express intention.
.
In Estate of Harkan,
39
the testator's son was attempt-
ing to require trustees to pay corpus to him.
The father
12
had left a certain amount to pay to son by trustees "as
they deem fit."
In denying the request the court said:
For a court to disregard such qualifying
language of both the will and the final
decree would fly in the teeth of the manifest intention of testator to restrict
the time of payment to discretion of the
[Trustees].40
In Damon v. Damon,41 the court said that where the
trust is a discretionary one, the beneficiary cannot compel
the termination of the trust even though he is the sole
beneficiary and sui juris.
5.
Where the Beneficiary is Under a Disability
Which Ceases
"If the purpose of the trust is to separate the bene-
ficial enjoyment of the property from its management solely
on account of a physical or mental disability, and disability is removed, the continuance of the trust is not
necessary to carry out a material purpose of the trust. 42
The same idea is true for trusts for education and support.
In Citizens Fidelity Bank v. schellberg,43 the portion
asked whether trust for education of beneficiaries had become dry and passive because its purpose in educating the
beneficiaries had been accomplished.
The court answered
't hat it had and terminated the trust.
However, the opposite may be true where the purpose of
the trust had not been fulfilled.
In Johnson v. snamon,44
the wife alleged that the only reason for the trust was the
13
marriage she was under and since she had divorced her husband the reason was no longer there.
The court said that
the trust was to protect her from future husbands as well
and refused to terminate.
Therefore, if the disability is not the sole purpose
of the trust and the other purpose has not been carried
out, the trust will not : be terminated.
6.
Compromise Agreement
If a trust is created by the terms of a will and there
are no spendthrift provisions and there is a will contest,
the court may by agreement terminate the trust and approve
the settlement agreement. 45
In Guttman v. schiller,46 a trust was created by the
father of Guttman for wife, and to go to sons at wife's
death .
A previously alienated daughter was reconciled with
her mother who named her as her sole beneficiary.
In order
to avoid a will contest at wife's death, sons and daughter
entered into full settlement and compromise of their claims.
The court said that the beneficiaries can terminate the
trust if certain conditions are met : (1) the purpose of the
trust must be substantially accomplished, (2) no unascertainable contingent interests , (3) no spendthrift provisions, (4) beneficiaries are sui juris, (5) none under
legal disability .
Here, the purposes were accomplished and
the trust was allowed to be compromised.
14
In Budin v. Levy,47 the court allowed a compromise
over genuine controversy over codicil of a will that created
a trust.
The court said that the parties may compromise
their differences before the will is probated.
may be contrary to the testator's intent.
The result
However, if the
result may be nothing, the court is more willing to award
the compromise and salvage at least some of the testator's
intent.
Contrary to the above case is Adams v. Link,48 in
which a Connecticut court denied a request to compromise.
In that case, there was no will contest and the ultimate
purpose of the trust's creation and existence had not been
accomplished.
There were also spendthrift provisions in
the trust.
7.
Disclaimor by Beneficiary of Spendthrift Trust
According .to Scott, the authroities are unclear as to
whether a beneficiary of a spendthrift may disclaim after
he has accepted the interest. 49
In Pennsylvania, a statute
authorizing such release of a spendthrift trust to no one
but beneficiaries were repealed in the last legislature. 50
In New York, a current statute states that:
"The
interest of a beneficiary of any trust may be assigned or
otherwise transferred, except that (1) the right of a beneficiary of an express trust to receive the income from
property and apply it to the use of or pay it to any person
15
,
may not be transferred by assignment or otherwise unless a
power to transfer such might, or any part thereof, is con•
ferred upon such beneficiary by the instrument creating or
declaring the trust.- 5l
This position of the statute was announced previously
.
~n
I n Re
.
Bosseva~n
I
s Estate , 52 where the court allowed th e
assignment of the principal of spendthrift trust as valid
and effective.
But an assignment of income is not absolute,
and maybe made only within limited group.
Therefore at
least in New York, the principal of a spendthrift trust may
be transferred but the income may not.
The object of ma-
terial purpose of the settlor is still manifesting itself.
8.
Partial Termination of the Trust
In Welch v. Episcopal Theological school,53 a trust
was partially terminated at request of trustee of estate
as to two-thirds of the trust.
The widow of the testator
was deceased and son was to receive income , then to seminary.
The court terminated partially as to the school
since the trust purposes were fulfilled and the school was
the ultimate owner of the trust .
The chief reason for the
partial termination of this trust was that Court felt that
the purposes of the settlor were accomplished.
This is
also the rule advanced by the Restatement of Trusts.
9.
54
Consent of Beneficiaries and Settlor
This last category is an exception to the general rule
,
16
of material purpose fulfilled.
The basic reason is that
the settlor has changed : his mind and the beneficiaries no
longer desire the trust.
Therefore the basic rule is that if the settlor and
all of the beneficiaries of a trust consent and none is
under an incapacity, they can compel the termination or
modification of the trust, although the purposes have not
' hd55
b een accomp l ~s
e.
· 56
In a Texas case, Sayers v. Bak er,
the terms of the trust were modified all long as the settlor and all of the beneficiaries so desire.
Even though
spendthrift.
There is a latin phrase which aptly sums up the law
of traits in this area "cujus est dare, ejus est disponere"
or the owner of property may do with it as he pleases.
This appears to be the prevailing view and it is supported
by legal authors in the: phrase an active trust may not be
terminated if its continuance is necessary to carry out a
material purpose of the settlor.
FOOTNOTES
1Restatement (Second) of Trusts,
§
2 (1959).
2sui juris - having capacity to manage one's own affairs; and not under legal disability to act for one's
self. Black's Law Dictionary 1602 (4th ed. 1968).
3Scott, Trusts,
4Id •
§
§
,337 (2 ed. 1956)
337.1
5Budin v. Levy, 343 Mass. 644, 180 N.E.2d 74 (1962).
6Restatement (Second) of Trusts
(1959).
'
§
337 comment F
7Adams v. Link, 145 A.2d 753 (1958).
8 Id •
9In re Estate of Bosler, 378 Pa. 333, 107 A.2d 443
(1954).
10
.
Restatement (Second) of Trusts
llId.
§
§
152 (2)
(1959).
152 (1) •
12Griswo1d, Spendthrift Trusts
§
517 (2d ed. 1947).
13 Tree v. Rives, 347 Ill. App. 358,106 N.E.2d 870
(1952) •
14 In the Matter of Vought, 57 Misc.2d 396, 293 N.Y.S.2d
34 (1967).
15 Id •
17
18
16 In the Matter of Knass, 204 Misc. 207, 121 N.Y.S.2d
5 (1953).
17 In the Matter of Thompson's Trust, 10 Misc.2d 50,
169 N.Y.S.2d 269 (1957).
18Kirkland v. Mercantile Trust Co., 218 Md. 17, 145
A.2d 230 (1958).
19 Id •
20Leonardini v. Wells Fargo Bank, 131 Cal. App. 2d 9,
280 P.2d 81 (1955).
21 Id •
22 In the Matter of Higgins, 205 Misc. 385, 127 N.Y.S.2d
664 (1954).
23 Id •
24Internal Revenue Service v. Ellis's Estate, 252 F.2d
109 (1958).
25
Note 9 supra.
26Restaternent (Second) of Trusts
(1959).
§
337, comment j
27Saunders v. Vgutier, 4 Beav 115, 49 Eng. rep. 282
(1841) •
28Claflin v. Claflin, 20 N.E. 454 (Mass. 1889).
30Moxley v. Title Insurance Co., 27 Cal.2d 457, 165
P.2d15 (1946).
31Crocker-Citizens Nat'l Bank v. Younger, 93 Cal. Rptr.
214, 481 .P.2d 222 (1971).
19
32Hamilton v. Robinson, 236 Mo. App. 289, 151 S.W.2d
504 (1941).
33Thomson v. union Bank, 291 S.W.2d 178 (Mo. 1956).
34 Note 26 supra.
35 In the Matter of Cannistra, 384 Pa. 605, 121 A.2d
157 (1956).
36 In the Matter of Estate Borsch, 362 Pa. 581, 67 A.2d
119 (1949).
37
3 Scott, Trusts,
§
337.4 (2d ed. 1956).
38Abbott v. Everett Trust and Bank, 50 Wash. 2d 398,
312 P.2d 203 (1957).
39 In reEstate of Harkan, 273 Wisc. 442, 78 N.W.2d
767 (1956).
4l Damon v. Damon,. 312 Mass. 268, 44 N. E.2d 657 (1942).
42Restatements (Second) of Trusts
(1959) •
§
337 comment h
43Citizens Fidelity ' Bank v. Schellberg, 238 S.W.2d
142 (Mo. 1951).
44
'
Johnson v. Snamon, 76 S.W.2d 824 (Mo. 1934).
45Restatement (Second) of Trusts
§
337 comment 0 (1959).
46Guttman v. Schiller, 39 Ill. App. 2d 58, 187 N.E.2d
315 (1963).
47 Note 5 supra.
48Note 7 supra.
20
49 3 Scott, Trusts § ' 337.7 (2d ed. 1956).
50 Pa. Stat. Ann.
§
301.3 (Supp. 1973).
51 N.Y. Estates, Powers and Trusts Law § 7-1;5 (McKinney
Supp. 1973).
52 rn re Bossevar.'s Estate, 46 Misc. 2d 237, 243 N.Y.S.
2d 36 (1963).
53Welch v. Episcopal Theological School, 75 N.E. 139
(1905) •
54Restaternent (Second) of Trusts § 337 comment p (1959).
55Restaternent (Second) of Trusts
§ 338 (1959).
56sayers v. Baker, 171 S.W.2d 547 (Tex. civ. App. 1943).