Eimi specializes in the area of Estate Planning and Estate Administration. Eimi’s estate planning practice includes planning for both simple and complex estates. Her services include drafting basic and tax planning Wills, Durable Powers of Attorney and Advance Medical Directives, as well as preparing trust documents necessary to preserve family wealth and minimize tax consequences. Eimi also assists clients with gifting and transfers of family assets and closely-held businesses. Eimi’s estate administration practice includes all aspects of probate matters. including intestacy proceedings, probate of Wills, marshaling estate assets and providing an inventory, preparation and filing of Federal and New Jersey and New York estate tax returns, preparation of formal and informal estate accountings, and the final distribution of estate assets to the beneficiaries and heirs of the estate. Eimi also assists clients with post mortem estate planning opportunities. Eimi also represents clients in matters regarding Trust administration and Trust termination by way of informal agreement or formal court applications, including filing of accountings, as well as modification and revocation of Trusts by way of information agreement or by court application.
Posted in Hot Trends: Developing Case Law | By Estate & Trust GroupREFORMATION, MODIFICATION, INTERPRETATION, REVOCATION AND TERMINATION OF TRUSTS
Prior to the adoption of the NJ UTC, the law governing the modification or termination of trusts was primarily common law. Much of that common law is now codified by the NJ UTC.
For instance, the NJ UTC affirms that a trust may be terminated when, inter alia, it becomes “unlawful, contrary to public policy or impossible to achieve” its purpose. N.J.S.A. § 3B:31-26(a); cf. UTC § 410.
The general provision under the NJ UTC on modification or termination of trusts by consent is N.J.S.A. § 3B:31-27. It is important to note that N.J.S.A. § 3B:31-27 applies only to irrevocable noncharitable trusts.
Specifically, N.J.S.A. § 3B:31-27(a) provides that a “noncharitable irrevocable trust may be modified or terminated upon consent of the trustee and all beneficiaries, if the modification or termination is not inconsistent with a material purpose of the trust.” Note that this means of modification or termination does not entail court approval.
By contrast, N.J.S.A § 3B:31-27(b) encompasses court approval: “a noncharitable irrevocable trust may be terminated upon consent of all the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust.” Moreover, the same type of trust “may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.”
N.J.S.A. § 3B:31-27(c) clarifies that a spendthrift provision is not presumed to constitute a material purpose of the trust.
N.J.S.A. § 3B:31-27(d) states that upon termination of a trust under this statute, “…the trustee shall distribute the trust property as agreed by the beneficiaries.”
Finally, N.J.S.A. § 3B:31-27(e) provides that if the beneficiaries do not consent, the modification may nonetheless be approved by the court if the court is satisfied that if all the beneficiaries had consented the trust could have been modified or terminated and the interest of the beneficiary who does not consent will be adequately protected. The application of the statute presumes that all the parties have been properly identified, including future takers. The provisions following N.J.S.A. § 3B:31-27 then deal with the modification or termination of certain kinds of trusts.
N.J.S.A. § 3B:31-28 authorizes the modification or termination of a trust because of unanticipated circumstances or an inability to administer the trust effectively. Unlike N.J.S.A. § 3B:31-27, application of N.J.S.A. § 3B:31-28 is not limited to noncharitable trusts. N.J.S.A. § 3B:31-28 is essentially a codification of the equitable doctrines of modification or termination, which apply to both charitable and non-charitable trusts. The statue provides, as the equitable doctrines do, that the court may modify the administrative or dispositive terms of a trust or terminate a trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trusts. The statute further states that the court may modify the administrative terms of the trust if continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust administration. Finally, the statue provides that upon termination of the trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust. Note that on its face this statute, unlike at common law, does not impose the condition precedent of an “emergency” or “necessity.” The statute simply authorizes the exercise of equitable powers when the court is faced with “not anticipated” circumstances. This may comport with the position taken in the Restatement: “[i]t is not necessary . . . that the situation be so serious as to constitute an ‘emergency’ or to jeopardize the accomplishment of the trust purposes.” Restatement (Third) of Trusts § 66(1) (2003), cmt. a.
N.J.S.A. § 3B:31-29 deals with the modification or termination of charitable trusts. It codifies the equitable doctrine of cy pres. Absent a provision in the terms of the charitable trust that would result in distribution of the trust property to a non-charitable beneficiary, if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve or wasteful, (1) the trust does not fail, (2) the trust property does not revert to the settlor or the settlor’s estate and (3) the court may modify or terminate the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor’s charitable purposes.
N.J.S.A. § 3B:31-30 addresses uneconomic trusts. It provides new law. N.J.S.A. § 3B:31-30(a) provides, “[a]fter notice to the qualified beneficiaries, the trustee of a trust consisting of trust property having a total value less than $100,000.00 may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.” This is significant because the trust can be terminated without a judgment, even without the consent of the qualified beneficiaries. The statute requires only notice to the qualified beneficiaries. The statute does not specify what action the trustee should take if the qualified beneficiaries object. NJSA § 3B: 31-30(b) provides that the court can modify or terminate a trust, or remove a trustee and appoint a different trustee, if the court determines that the value of the trust property is insufficient to justify the cost of administration. This is also significant because a trustee can be removed without cause, but simply to make the administration of the trust more cost effective. Finally, N.J.S.A. § 3B:31-30(c) provides, “[u]pon termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of a trust.” The most logical application of this section would be distribution to the remainder beneficiaries, but for a trust in perpetuity or trust which otherwise does not specify remainder beneficiaries, or which has unascertained future takers, distribution becomes more complex.
The next two statutes confirm basic concepts of New Jersey common law. N.J.S.A. § 3B:31-31 allows reformation of a trust to correct a mistake, even if the trust is unambiguous, to conform to the settlor’s probable intent. See also UTC §415, comment (“In determining the settlor’s original intent, the court may consider evidence relevant to the settlor’s intention even though it contradicts an apparent plain meaning of the text. The objective of the plain meaning rule, to protect against fraudulent testimony, is satisfied by the requirement of clear and convincing proof.”). See also cf. Restatement (Third) of Trusts § 62, comment a (“where no consideration is involved in the creation of a trust, it can be . . . reformed upon the same grounds, such as fraud, duress, undue influence, or mistake . . .”).
N.J.S.A. § 3B:31-32 then makes clear that the doctrine of probable intent applies: the act does not prevent a court “from construing the terms of a trust, even if unambiguous, to conform to the settlor’s probable intent.”
N.J.S.A. § 3B:31-33 considers tax objectives: “To achieve the settlor’s tax objectives, the court may modify the terms of the trust in a manner that is not contrary to the settlor’s probable intent. The court may provide that the modification has retroactive effect.” The statute appears to parallel Estate of Branigan, 129 NJ 324 (1992).
Finally, N.J.S.A. § 3B:31-34 expands prior statutory provisions (N.J.S.A. § 3B: 14-23(r)) to provide that, unless the result would impair the rights of any beneficiary or adversely affect the achievement of the purposes of the trust, a trustee may combine or divide trusts. The statute expands existing law by providing that trusts may be combined, “… even if such trusts or parts of trusts thereof are created by different settlors or under different instruments, and even if the trusts have different trustees.”