The post below was co-authored by Nick Dimakos.
A prior blog post addressed circumstances in which an “Irrevocable Trust” can be modified or terminated under the recently-enacted Uniform Trust Code. We were fortunate enough to assist a client in successfully terminating a trust in her favor under the Trust Code.
The client qualified for SSI in 1994. Her mother died in 2000. The mother’s Will established a trust for the benefit of her husband, our client’s father. The trust terminated at the father’s death in 2008. The trust provided that upon his death, the remaining trust assets were to be distributed to three separate trusts, one for each of the parents’ children. The existence of the trust established for our client rendered her ineligible for further SSI benefits.
The father’s Will established a Third Party Special Needs Trust for the benefit of our client. She never received any distributions from that trust, nor, as a result of her beneficial interest in her mother’s trust, did she receive any further SSI benefits. The language of the trust established for our client under her father’s Will made it clear that the trust’s sole purpose was to preserve her governmental benefits and except for the existence of those benefits, her father would have distributed our client’s share to her outright, as he did with his two other children (our client’s siblings).
We brought an action to terminate the trust pursuant to the Trust Code (Section 3B:31-28(a)) and distribute all of the remaining trust assets to our client. That section of the Trust Code authorizes a court to terminate a trust if, because of circumstances not anticipated by the Settlor, a termination would further the purposes of the trust. Upon termination, the trustee is directed to distribute the trust property in a manner consistent with the purposes of the trust.
The judge agreed with our contention that our client’s father did not anticipate a circumstance in which his daughter would receive neither distributions from the trust nor governmental assistance. Moreover, the judge found it inequitable that our client’s siblings, who were the remainder beneficiaries of her trust and objected to its dissolution, had received their shares of the father’s estate and our client had received nothing. Therefore, the judge ordered a termination of the trust and a distribution of all remaining trust assets to our client.
It is worth noting that the parties (the trustee, our client and her siblings) could have terminated the trust by mutual agreement via a Non-Judicial Settlement Agreement, had they been able to come to an agreement (see here). It is also worth noting that these types of cases are very fact sensitive, meaning that each case is different and cannot necessarily be relied upon in other situations. The key in this case was the plain language of the trust which served as evidence of the father’s intent in creating it, as well as evidence of circumstances that he did not anticipate. It was those unanticipated circumstances that warranted termination of the trust in our client’s favor.
Do not hesitate to contact me at firstname.lastname@example.org or Nick at email@example.com if you have questions or concerns about either your rights as a trust beneficiary, or your obligations as a trustee.