Modification and Termination of Trusts

• Author: Browne C. Lewis
• Pages: 174-200

174

Chapter 6 - Modification and

Termination of Trusts

A trust may be modified or terminated in several different ways. First, the terms of

the trust may dictate the duration of the trust. For instance, O may give Blackacre in trust to

A for the benefit of B for life. The trust will end when B dies. Further, language in the trust

instrument may indicate the manner in which the trust may be modified. Consider the

following example. O gives a certain sum of money in trust to A for the benefit of B. A is

instructed to pay B $1000 per month. In the event that B becomes incapacitated, B has the

power to modify or terminate the trust. The testator could also give an independent third

party the authority to modify or terminate the trust. With regards to an inter vivos trust, the

settlor can revoke the trust if she has retained the right in the trust instrument. If the settlor

and all of the beneficiaries consent, an irrevocable inter vivos trust may be modified or

terminated. A testamentary trust can be terminated by consent of all of the beneficiaries as

long as a material purpose of the trust does not exist. For instance, if the testator establishes

a trust to pay for her children’s education, the trust cannot be terminated as long as one of

the testator’s children have not received the requisite education.

Under the doctrine of merger, a trust is terminated if the legal and equitable title to

the trust property ends up in the hand of one person. For example, Mary created a trust

naming Peter and Paul as trustees of Brownacre. Peter and Paul conveyed their legal title to

John, the only beneficiary of the trust. As a result, the trust terminates and John receives fee

simple title to Brownacre. In order for Peter and Paul to become the owners of the

Brownacre free of the trust, John could convey his equitable interest in Brownacre to Peter

and Paul. John’s equitable interest would merge with Peter and Paul’s legal interest to give

them the fee simple title to Brownacre. A trust may also be terminated if it runs out of

property. For instance, if the testator places a certain amount of money in trust, the trust will

cease to exist once the trustee has spent all of the money. According to the terms of the

testamentary trust included in Whitney Houston’s will, her daughter, Bobbi Christina, is to

receive all of the money in the trust when she reaches the age of 30. Once the trustee

disburses the money to Bobbi Christina, the trust is extinguished.

175

6.1 Termination

In the Matter of the Estate of Bonardi

, 871 A.2d 103

PARRILLO, J.A.D.

This is an appeal from a judgment of the Superior Court, Chancery Division,

certified as final, Rule 4:42-2, permitting termination of a testamentary trust. For the

following reasons, we reverse.

William Bonardi died testate on March 9, 2002, survived by his wife, Donna, and his

two daughters, Danielle and Jessica. At the time of his death, Danielle was eighteen-years old

and Jessica was sixteen-years old. Although decedent's Will included some specific bequests

to other individuals, his wife and two daughters were the primary beneficiaries under

separate testamentary trusts, each made up of one-half of the residuary estate. Stephen F.

Pellino, decedent's friend, was named Executor of decedent's estate and Trustee of the two

testamentary trusts.

The first trust named plaintiff, Donna Bonardi, as the income beneficiary and

devised the remainder to Danielle and Jessica. The second trust named the daughters as the

only beneficiaries. In both instances, the daughters were not entitled **105 to outright

distribution of their interest before they reached the age of twenty-five.

Under the first trust, plaintiff's interest was subject to several terms and conditions.

Paragraph TENTH of decedent's Will reads, in pertinent part:

For the duration of the life of my wife, DONNA, the Trustee shall pay her or

apply towards her benefit, all of the net income of this trust. In addition, the

Trustee may pay to her or apply to her benefit such amounts of the principal of

the Trust as the Trustee, in the exercise of the Trustee's absolute discretion,

deems advisable for her welfare. In deciding to make such distributions of

principal to or for DONNA'S benefit, the Trustee shall be guided by the

following statement of my purposes and intentions: It is my expectation that the trust

income and principal will not be made available to provide primary support for the beneficiary,

as I expect that DONNA in complete or large measure will support herself. I

further direct that my Trustee shall, to the extent possible, not make payments to DONNA

out of principal unless necessary, and that he rather seek to preserve the corpus, to the extent