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(1) (a) i) a) I.A.1.a.(1)(a)i)a)x(%$0 ) p`CG Times(V$0 0 (6 Z 6Times New Roman Regular((D$0 0 0 (2e$0 0 0 0 (<>$0 0 0 0 0 ~101 RomanAuto  #, CEOP, Bold, Mark TOC Level 1   2 e  0  .3  Ԁ  l<Y=0ColumnsNewspaper Columns, .25 Gutter , |(e'6Cover PageCenter Page, Very Large, Bold, HPg       .( {^,Title1" L/R Margins, VyLrg/Bold, New Page Method/#: 1     1n:2 UpperAlphaAuto  #, CEOP, Bold, Mark TOC Level 2   2 e  a  .3  Ԁ  4H-63 Arabic #Auto  #, CEOP, Undl, Mark TOC Level 3   2 e  i  .3  Ԁ  5:4 LowerAlphaAuto  #, CEOP, Undl, Mark TOC Level 4   2 e(  0  )3  Ԁ  |2 :5 (Arabic #)Auto  #, CEOP, Mark TOC Level 5   2le(  a  )3  Ԁ  tcC:1st Art.PageNew Page #: 1; JustificationXX  2b0Quick 0 z8D{8Q|8Q}8Q~8Q8Q8Q8U8D8D#[&\`Ѓ3|x8'U# e37=CIQYag1.a.i.(1)(a)(i)1)a)C:\WINDOWS\TEMPLATE\STANDARD.WPTp8Lrhd/G/D/ioI&G Letterhead/ GMK/Date/ioXpXXXpXXXXXXXpj@t t Ikard&Golden,p.c.  XXjXXX@attorneys&counselors  LL8 X8"X\;XX\;\;Q44FrankN.Ikard,Jr.*@ll!823CongressAvenueQH H B8"Correspondence: L QAlvinJ.Golden*@&Suite910Q& & A8"P.O.Box684367 $ QZZGlennM.Karisch*@zz Austin,Texas78701Q=8"Austin,Texas787684367 \ QJerryFrankJones(OfCounsel)*@TT$512/4726695Q  A8"Fax512/4723669 4 Q^^\;*BoardCertified D QEstatePlanning&ProbateLaw@email:karisch@io.com\;^^Q?8"WritersDirectLine | Q88\;\;^^\;TexasBoardofLegalSpecialization@http://www.io.com/user/karisch/ikard&golden.html\;^^Q C8"512/4724542  T  XXXXB.` hp x (#%XB\ \;XpX \@,,$ &March8,1996!  (3$ !   d(2$ !   -$HCypdp_#.styI. A. 1. a. (1) (a) i) a) I.A.1.a.(1)(a)i)a)($0  0` (#(#0 ` (#` (#0 (# (#2c(  1  )3  0h(#(#4H-43 NumbersAuto #, ALL CAPS, Mark Text, Underline   2 e  i  .3  Ԁ  6$ Diagonal Lines 1dd z285 (Numbers)Auto #,Upper/Lower Case,Mrk Txt   2 e(  a  )3  Ԁ  \  `*Times New RomanTTd I )'  __ ModifyingandTerminatingIrrevocableTrusts_j!j!j!(#_CC@    5  A  _ X ?*4' dE`? 0#(wplwpl   4   2(  <DL2XXXW>X   `*Times New RomanTTW        XXXW1\  `*Times New RomanTTW>4X` hp x (#>   4    D +(  __ CC@    5  A  _FFF(#_AdvancedEstatePlanningandProbateLawCourse_Ԉ X ?*4' dEx? a, b, c,Level 1Level 2Level 3Level 4Level 5 RemaindermenBRADYSBradys refdn.r.e. DistBarceloApplingMcCamishLoeffler QTIPWesterfeldHuckabyWilkersonMcClaryincludibledecisionmakercaregiversremaindermenterroremnontrusteedisclaimantnonlawyersBogertI.R.C. Rul PLR TRPAMizell FLPs FLP OTTkarisch OttrefdMBankunascertainedgrandfathered6#54Quick a. 7  .0 71, 2, 3,Level 1Level 2Level 3Level 4Level 54#62Quick 1.:  .0 :&amalgamatedX   `*Times New RomanTT2b0Quick 0 ((3$ !      0  H(#$  0  $35;AGOW_e1A.1.a.(i)(1)(a)i)a)mailto:[probate@io.com]L 6Plain TextPlain Text  OM<6X9`("Courier NewTTO        XXXW1\  `*Times New RomanTTW  ($ I -JKLhsCEIMQUY]aAutoList1i)1)a)(_y$0  2c  A  .3  0` (#(#(p$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#2c(  a  )3  0h(#h(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#2c  i  )3  0(#(#( =$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#0(#(#2c  a  )3  0p(#(#<6X9`("Courier NewTT$35;AGMSY_2A.A.A.A.A.A.A.A.TABLE A(TABLE B0UTABLE Cbogert deviation0.Normal<:Definition T<GD:Definition L , ;1` hp x (#;  8.` hp x (#886Definition('z&H1      XXX(o&H2  XXX(o&H3  XXX(&H4 XXX XXX(o&H5  XXX(o&H6  XXX20Address d****3 ShadowdZd8SP6Blockquote , , ;1` hp x (#;   8.` hp x (#8ffff'dxd  d,*CITE,dl*CODEKz<6X9`(Courier NewKXXXS{\  `&Times New RomanS42Emphasis6&)4Hyperlink            <:FollowedHype    4go2Keyboard Kz<6X9`(Courier NewK XXXS{\  `&Times New RomanS<:Preformatted/%  ,Kk (#/Kz<6X9`(Courier NewKXXXS{\  `&Times New RomanS/%  ,Kk (#/<:zBottom of Ipq4$ ** ddI  B    ?|%2A`Arial?9rq*  dd9  XXXS{\  `&Times New RomanS  &0 d doooo'dxddd'dxd<:zTop of ForIpq4$** ddI  B    ?|%2A`Arial?9rq*  dd9  XXXS{\  `&Times New RomanS  0Kl.SampleKz<6X9`(Courier NewKS{\  `&Times New RomanS0.Strong 8dl6TypewriterKz<6X9`(Courier NewKXXXS{\  `&Times New RomanS42Variable:8HTML MarkupB      2 0CommentB  <6X9`(Courier New\  `&Times New Roman%2A`Arialinterested person,TABLE Dgeneral powerMTABLE EQTABLE FTABLE GTABLE HTTABLE IfTABLE Jnew virtual statuteTABLE K86Heading 1    )\XXXE(X  `PalatinoE                E(X  `PalatinoEXXX8ob6Heading 2  )\E(X  `PalatinoE     E(X  `PalatinoE8l_6Heading 3    E(X  `PalatinoE      E(X  `PalatinoE<:Default Para20Footer  !XXXE(X  `PalatinoE>44 <DL!>E(X  `PalatinoEXXX4jj2wills 1    )\E(X  `PalatinoE    E(X  `PalatinoE<jj:Body Text In  X )\E(X  `PalatinoE   E(X  `PalatinoE2\0Header  !E(X  `PalatinoE>44 <DL!>E(X  `PalatinoE0aa.Title   )\E(X  `PalatinoE    E(X  `PalatinoE$35=AEIMQU3(1)1111111(X  `Palatino !  _  C c$#%CTRX3'X3' Letter3' Letter3'T&(%XX&(%%&(XX  -XP X-     #dddd  e'    _% A __6&(MODIFYINGANDTERMINATING < IRREVOCABLETRUSTS#&(%C#_ J ___________PresentedBy:GLENNM.KARISCH______WrittenBy:GLENNM.KARISCHANDJOHNR.OTT | 6&(Barnes&Karisch,P.C. t 2901DBeeCavesRoad t Austin,Texas78746(512)3288355/FAX(512)3288413karisch@texasprobate.comhttp://www.texasprobate.com#&(%  |a# t#! ,;,6&(Copyright199_9ByGlennM._KarischandJohnR.Ott,_ԀAllRightsReserved#&(%,;# %X# ___________StateBarofTexasAdvancedEstatePlanningandProbateLawCourse H+(" SanAntonio,TexasJune1999___ <-*$ _CC  r/-& _e'    (   &:%%&(@"GlennM.Karisch  @WW#&(%%&:R #6%&(Barnes&Karisch,P.C. J @xx2901BeeCavesRoad,SuiteD@ Austin,Texas78746@AA(512)3288355Fax:(512)3288413@karisch@texasprobate.com j @rr www.texasprobate.comEducation TheUniversityofTexasSchoolofLaw,Austin,Texas R  0  _Juris_ԀDoctorwithHonors,1980 (#(# TheUniversityofTexasatAustin,Austin,Texas0  BachelorofJournalismwithHighestHonors,1977 z" (#(# ProfessionalExperience    Barnes&Karisch,P.C.,Austin,Texas,1998PresentIkard&Golden,P.C.,Austin,Texas,19928Hoffman&Stephens,P.C.,Austin,Texas,19912TheTexasMethodistFoundation,Austin,Texas,VicePresidentandGeneralCounsel,19891991Coats,Yale,_Holm_Ԁ&Lee,Houston,Texas,19801989 ProfessionalActivities X  BoardCertified,EstatePlanningandProbateLaw,TexasBoardofLegalSpecializationFellow,AmericanCollegeofTrustandEstateCounselChair,EstatePlanningandProbateSection,TravisCountyBarAssociation,199697  ~& LegalArticlesandPapers    AuthorandEditor,TexasProbateWebSite_[www.texasprobate.com]_Ԁandemailmailinglist[4E GG  5  probate@io.com]6G  7 '#) J" (1995_Ԅ99).#&(%6 #__ l# ____ ProtectingtheSurvivingSpouse,SouthwesternLegalFoundationWillsandProbateInstitute(1999)._ LegalResearchontheInternet,(withJosephG.Hodges,Jr.,Denver,Colorado),AmericanCollegeofTrustandEstatesCounsel1999AnnualMeeting. UsingtheInternetinanEstatePlanningPractice,StateBarofTexasAdvancedEstatePlanningandProbateLawCourse(1998). SleepingWiththeEnemy:HowtoSleep_At_ԀNightWhileMakingaLivingWithanEstatePlanningPractice6%&(,TravisCountyBarAssociationEstatePlanningandProbateSeminar(1998). V'$.  AretheWindsofChangeBlowingforTexasProbateCourts?,Or...5B,_orNot_Ԁ5B,ThatIstheQuestion,DocketCallinProbateCourtSeminar,SanAntonio(1998)."EstatePlanningtoProtecttheSurvivingSpouse,"StateBarofTexasAdvancedEstatePlanningandProbateLawCourse(1997)."CourtCreatedTrustsinTexas,"StateBarofTexasAdvancedDrafting:EstatePlanningandProbateLawCourse(1995),updatedtoreflect1997legislativechanges(1998).#&(%6#&:%%&( @*_ #&(%%&:&#Ԉ  v.,7 _  X 36_____ E?@" TableofContents      _  %  %0 p    I.INTRODUCTION #""J(#.> > p(#p(##1%݌  Ќ  %  %0 p    II.JUDICIALMODIFICATIONORTERMINATION #""J(#.2p(#p(##1%݌ # : Ќ  V  V0 p 0 p(#p(# p   A.CommonLaw #""J(#. (# (##1V݌   Ќ  V  V{0 p 0 p(#p(# p   B.Tex.TrustCode112.054 #""J(#.VV. (# (##2V{݌   Ќ  D  Dc0 p 0 p(#p(#0@ (# (#   1.TrusteeorBeneficiaryMayBringSuit#""J(#.>@ (#@ (##2Dc~݌    Ќ  D  Di0 p 0 p(#p(#0@ (# (#   2.ActionstheCourtisAuthorizedtoTake#""J(#.NN@@ (#@ (##2Di݌ o   Ќ  D  Dq0 p 0 p(#p(#0@ (# (#   3.FindingsRequired#""J(#.*@ (#@ (##4Dq݌ ? V  Ќ  D  Dc0 p 0 p(#p(#0@ (# (#   w80@ @ (#@ (#w8a.PurposesFulfilled/IllegaltoFulfill#""J(#.&&A@ (#@ (##4Dc~݌ &  Ќ  D  D0 p 0 p(#p(#0@ (# (#   x80@ @ (#@ (#x8b.UnknownorChangedCircumstances#""J(#.<@ (#@ (##4D݌   Ќ  D  D 0 p 0 p(#p(#0@ (# (#   4.ConformingtotheIntentoftheSettlor#""J(#.@@ (#@ (##5D ݌   Ќ  D  D!0 p 0 p(#p(#0@ (# (#   5.SpendthriftClausesareaFactorButNotanImpediment#""J(#.O@ (#@ (##5D!!݌   Ќ  D  D"0 p 0 p(#p(#0@ (# (#   6.NoJusticiableControversyRequired#""J(#.hh<@ (#@ (##6D""݌ Of  Ќ  V  V#0 p 0 p(#p(# p   C.ReformationandRecission #""J(#./ (# (##6V##݌ 6 Ќ  V  V$0 p 0 p(#p(# p   D.Jurisdiction #""J(#.. . " (# (##7V$$݌   Ќ  V  V|%0 p 0 p(#p(# p   E.Venue #""J(#.h h  (# (##8V|%%݌  Ќ  V  VN&0 p 0 p(#p(# p   F.PartiestoTermination/ModificationSuit #""J(#.  > (# (##9VN&i&݌  Ќ  D  DC'0 p 0 p(#p(#0@ (# (#   1.WhoMayInitiateSuit#""J(#.22.@ (#@ (##9DC'^'݌ o Ќ  D  D9(0 p 0 p(#p(#0@ (# (#   2.NecessaryandProperParties#""J(#.**5@ (#@ (##9D9(T(݌ ?V Ќ  D  D6)0 p 0 p(#p(#0@ (# (#   3.VirtualRepresentationandRelatedIssues#p"p"I(#.B@ (#@ (##10D6)Q)݌ & Ќ  D  DA*0 p 0 p(#p(#0@ (# (#   4.AnalysisofNecessaryParties,VirtualRepresentation,andAdLitemy8DA*\*݌@ (#@ (# Ќ  y8y80 p y8y80 p(#p(#y8y80@ (# (#y8z8s8s8z8RequirementsinModificationandTerminationProceedings#p"p"I(#.P@ (#@ (##11  %  %.,0 p    III.NONJUDICIALMODIFICATIONORTERMINATION #p"p"I(#.~~6p(#p(##13%.,I,݌ Of Ќ  V  V-0 p 0 p(#p(# p   A.ActionsPermittedbytheTrustInstrument #p"p"I(#.? (# (##13V-,-݌ #: Ќ  D  D.0 p 0 p(#p(#0@ (# (#   1.ExpressProvisionsoftheTrustInstrument#p"p"I(#.C@ (#@ (##13D.#.݌  Ќ  D  D/0 p 0 p(#p(#0@ (# (#   {80@ @ (#@ (#{8a.TerminationofSmallTrust#p"p"I(#.6@ (#@ (##13D///݌  Ќ  D  D(00 p 0 p(#p(#0@ (# (#   |80@ @ (#@ (#|8b.TrustMergerand/orDivision#p"p"I(#.8@ (#@ (##14D(0C0݌  Ќ  D  D>10 p 0 p(#p(#0@ (# (#   }80@ @ (#@ (#}8c.TerminationDuetoTaxChanges#p"p"I(#.:@ (#@ (##14D>1Y1݌ g~  Ќ  D  DV20 p 0 p(#p(#0@ (# (#   2.TerminationbyDistribution#p"p"I(#.4@ (#@ (##14DV2q2݌ 7N! Ќ  V  VS30 p 0 p(#p(# p   B.TerminationandModificationPermittedbyStatute #p"p"I(#.nnG (# (##16VS3n3݌  " Ќ  D  DR40 p 0 p(#p(#0@ (# (#   1.RevocationbySettlor#p"p"I(#..@ (#@ (##16DR4m4݌  # Ќ  D  DI50 p 0 p(#p(#0@ (# (#   2.TerminationbyOccurrenceofEvent#p"p"I(#.TT;@ (#@ (##16DI5d5݌ !$ Ќ  D  DM60 p 0 p(#p(#0@ (# (#   3.Merger#p"p"I(#. @ (#@ (##16DM6h6݌ {"% Ќ  D  D570 p 0 p(#p(#0@ (# (#   4.DivisionofTrustforTaxPurposes#p"p"I(#.;@ (#@ (##16D57P7݌ K#b& Ќ  D  D980 p 0 p(#p(#0@ (# (#   5.AmendmentofCharitableTrusts#p"p"I(#.<<7@ (#@ (##16D98T8݌ $2 ' Ќ  V  V990 p 0 p(#p(# p   C.TerminationbyAgreementofSettlorandBeneficiaries #p"p"I(#.rrK (# (##17V99T9݌ $!( Ќ  V  V<:0 p 0 p(#p(# p   D.TheNewNonjudicialVirtualRepresentationStatute #p"p"I(#.H (# (##17V<:W:݌ %!) Ќ  %  %<;0 p    IV.SELECTEDPROBLEMAREASINTRUSTMODIFICATIONANDTERMINATION #p"p"I(#. Kp(#p(##18%<;W;݌ c'z#+ Ќ  V  V4<0 p 0 p(#p(# p   A.TaxIssuesonTrustModificationandTermination #p"p"I(#.F (# (##18V4<O<݌ 7(N$, Ќ  D  D2=0 p 0 p(#p(#0@ (# (#   1.GiftandEstateTaxIssues#p"p"I(#.NN3@ (#@ (##18D2=M=݌  )"%- Ќ  D  D.>0 p 0 p(#p(#0@ (# (#   ~80@ @ (#@ (#~8a.GiftonTrustTerminationorModificationofBeneficialInterest#p"p"I(#.\@ (#@ (##18D.>I>݌ )%. Ќ  D  Dh?0 p 0 p(#p(#0@ (# (#   80@ @ (#@ (#8b.Exercise,ReleaseorLapseofGeneralPowerofAppointment#p"p"I(#.V@ (#@ (##19Dh??݌ *&/ Ќ  D  D@0 p 0 p(#p(#0@ (# (#   80@ @ (#@ (#8c.ExerciseofPowerbySettlorinParticipatinginModificationorTermination#p"p"I(#.8"8"h@ (#@ (##19D@@݌ {+'0 Ќ  D  DA0 p 0 p(#p(#0@ (# (#   2.GenerationSkippingTransferTaxIssues#p"p"I(#.@@ (#@ (##19DAA݌ K,b(1 Ќ  V  VB0 p 0 p(#p(# p   B.CharitableRemaindermenandContingentRemaindermen #p"p"I(#.I (# (##20VBC݌ -2)2 Ќ  D  DC0 p 0 p(#p(#0@ (# (#   1.Charity/AttorneyGeneralInvolvement#p"p"I(#.=@ (#@ (##20DCD݌ -*3 Ќ  D  DD0 p 0 p(#p(#0@ (# (#   2.CyPres#p"p"I(#. @ (#@ (##20DD E݌ .*4 Ќ  V  VE0 p 0 p(#p(# p   C.ProblemsUniquetotheTrustee #p"p"I(#.LL4 (# (##21VEE݌ /+5 Ќ  %  %F0 p    V.CONCLUSION #p"p"I(#. p(#p(##22%FF݌  Ќ  %  %G0 p    VI.APPENDICES #p"p"I(#. p(#p(##23%GG݌ ]t Ќ  V  VRH0 p 0 p(#p(# p   A.AppendixA"AgreementandMutualReleaseTerminating_Trusts 8 1H 8_#p"p"I(#.00R (# (##23VRHmH݌ 1H Ќ  V  VI0 p 0 p(#p(# p   B.AppendixB!AgreementandMutualReleaseforTerminated_Trust 8  8_#p"p"I(#.ZZT (# (##26VII݌  Ќ  V  VJ0 p 0 p(#p(# p   C.AppendixC"OriginalPetitionforApprovalofTrustees8VJ K݌ (# (# Ќ  0 p 0 p(#p(#8ResignationandTerminationofTrust #p"p"I(#.9 (# (##29   V  VhL0 p 0 p(#p(# p   D.AppendixD"WaiverofCitation #p"p"I(#.5 (# (##32VhLL݌ }  Ќ  V  VXM0 p 0 p(#p(# p   E.AppendixEAffidavitofTrustOfficer #p"p"I(#.> (# (##33VXMsM݌ Q h  Ќ  V  VNN0 p 0 p(#p(# p   F.AppendixF"FinalJudgment #p"p"I(#.1 (# (##35VNNiN݌ % <  Ќ  V  V:O0 p 0 p(#p(# p   G.OrderAppointingGuardianAdLitem #p"p"I(#.ff8 (# (##39V:OUO݌    Ќ   _______________________________________      C c$$ CTRX3'X3'3' Letter3' LetterT&(%%&(&(%%&(XXXX  3XP Xh3     #dddd  CXXXX     {^       _MODIFYINGANDTERMINATINGIRREVOCABLETRUSTS___{^V           Y=(,(#(#(  1,VV1__   2c  I  .3  Ԁ  _INTRODUCTION_W  X     _Trusts,beingcreaturesofequity,aresubjecttotheequitablepowersofthecourtsevenwhentheyareirrevocableandunamendablebytheirownterms.Thispaperexaminesthewaysinwhichirrevocabletrustscanbemodifiedorterminated,whetherjudiciallyornonjudicially,whetheraccordingtothetrustsexpresstermsorotherwise.Thepaperisdividedintotwoparts.First,thepaperexaminesthelawregardingmodifyingandterminatingtrustsandthemethodsavailableforsuchaction.Second,itexaminessomeofthepracticalproblemsattorneysfacewhenseekingtomodifyorterminateatrust,includingtheproblemstypicallyfacedbythetrustee,theincomebeneficiaryandtheremainderbeneficiary.Whilethispaperprimarilydealswithmodifyingorterminatingtrustswhichalreadyareinexistence,itincludesdraftingsuggestionswhereappropriate.Attachedtothepaperareseveralappendicescontainingformsrelatedtomodifyingandterminatingtrusts,includingsomeofthesedraftingsuggestions.ThispaperprimarilyfocusesonTexasslawsregardingmodificationandterminationoftrusts,togetherwithrelevantprovisionsoftheInternalRevenueCode.AnexcellentsourceofinformationonthissubjectisDarlenePayneSmithspaperentitled ReformationandConstructionSuitspresentedtothe1994AdvancedEstatePlanningandProbateLawCourse.Ms.Smithsworkhasbeenveryhelpfultotheauthorsinpreparingthispaper.TheauthorswouldliketothankLindaL.KellyofHouston,Janice_Torgeson_ԀofFrostBankinAustin,andthefolksatIkard&Golden,P.C.,inAustinfortheirassistancewiththispaper._________   2c  II  .3  Ԁ  _JUDICIALMODIFICATIONOR *&/ TERMINATION___+` F`   U+l'0 _Anyanalysisofthemodificationorterminationofirrevocabletrustsmust__Ԁbeginwiththelawapplicabletosuchactions.  e/|+5 n    2c  A  .3  Ԁ  CommonLawn,b Qb    5 PriortotheenactmentoftheTexasTrustCodein1983,therewasnospecificstatutoryauthorizationformodifyingorterminatingtrustsoutsideofthetruststerms.TheonlystatutoryauthorityintheTexasTrustAct(predecessortotheCode)wasSection46(c):8 D NothingcontainedinthisSectionofthisActshallbeconstruedasrestrictingthepowerofacourtofcompetentjurisdictiontopermitandauthorizethetrusteetodeviateandvaryfromthetermsofanywill,agreement,orothertrustinstrumentrelatingtotheacquisition,investment,reinvestment,exchange,retention,sale,supervisionormanagementoftrustproperty. D!D! V.A.T.S.art.7425b46C,repealedeffectiveJanuary1,1984.Thatobliquereferenceisconsistentwiththecommonlawdoctrineofdeviation.ItwasthisdoctrinewhichgavecourtstheauthoritytomodifyorterminatetrustsotherthaninaccordancewiththeirtermspriortotheadoptionoftheTexasTrustCode.ThisdoctrinewasexpressedbytheDallasCourtofCivilAppealsasfollows:8 D Acourtofequity = Ԁispossessedofauthoritytoapplytheruleordoctrineofdeviationimplicitinthelawoftrusts.Thusacourtofequitywillorderadeviationfromthetermsofthetrustifitappearstothecourt thatcompliance 5#LY withthetermsofthetrustisimpossible,illegal,impracticalorinexpedient ,or $ [  thatowingtocircumstancesnotknown %!\ tothesettlorandnotanticipatedbyhim,compliancewoulddefeatorsubstantiallyimpairtheaccomplishmentofthepurposeofthetrust .[citationomitted]Inorderinga )%a deviationacourtofequityismerelyexercisingitsgeneralpowerovertheadministrationoftrust;itisanessentialelementofequityjurisdiction. D!D! AmalgamatedTransitUnion,LocalDivision1338 .*g v.DallasPublicTransitBoard,430S.W.2d107, _/v+h 117(Tex.Civ.App."Dallas1968,writ_refd_), /0F,i cert.denied,396U.S.838(1969)[emphasisadded].SeealsoRestatementofLawofTrusts,2nd  Edition,167.IfthispartoftheAmalgamatedTransitUnion )@ opinionhasacertainringtoit,itisbecausethesameterminologyisusedinSection112.054oftheTexasTrustCode,discussedbelow.Aretherelimitsonthecourtsequitablepowerstodeviatefromthetrustinstrument?BogertandBogert,intheirtreatiseontrustsandtrustees,drawadistinctionbetweenthedispositiveprovisionsandtheadministrativeprovisionsofatrust.Whilethecourtclearlyhasthepowertodeviatefromtheadministrativeprovisionsofthetrustinstrumentinordertogivefulleffecttothedispositiveorbeneficialprovisions,itmustproceedmorecarefullywhendeviatingfromthedispositiveorbeneficialscheme.SeeBogert,Trustsand Yp Trustees(2ndEd.Rev.),561. U Thisdoesnotmean )@ thatacourthasnopowertoalterthesettlorsdispositivescheme,ratheritmeansthecourtmustexercisemorecare.ExamplesinBogertwherethedispositiveschememaybealteredarecaseswhereastatute(suchasTex.TrustCode112.054,discussedbelow)supportsthecourtactionorcaseswherethepartiestolitigationenterintoacompromiseagreementalteringtrusttermswhichthecourtfindstobefairandreasonable.See y Bogert,TrustsandTrustees(2ndEd.Rev.),994. I` SomeTexascourtswerereluctanttoapplytheseequitableprinciples(oratleasttoextendthemtotheirpossibleends)priortotheadoptionoftheTexasTrustCode.Forexample,inFrostNational Y p# BankofSanAntoniov.Newton,554S.W.2d149 )!@$ (Tex.1977),theTexasSupremeCourtheldthatatrustcouldnotbeterminatedonthebasisthatitsprincipalpurposeshadbeensatisfiedbecausethecourtcouldnotsubstituteitsjudgmentforthesettlorindeterminingwhichpurposessheconsidered principalandwhichweremerely incidental.554S.W.2dat154.Becauseofthisinconsistencyandbecauseoftheuncertaintysurroundingapplicationoftheseequitableprinciples,Section112.054wasawelcomeadditiontoTexassstatutesin1984.Thecommonlawrulesregardingtrustmodificationandterminationremainimportant,however.Section111.005oftheTexasTrustCodeprovidesthatcommonlawruleswillprevailexceptastheTrustCodechangessuchrules.Thus,evenaftertheenactmentoftheTrustCode,Section112.054may /+6 notbetheexclusivebasisformodifyingorterminatingatrust.Inanappropriatecase,acourtofcompetentjurisdictioncouldmodifyorterminateatrustforotherreasonsoronanotherbasisusingitsgeneralequitypowers.n   2c  B  .3  Ԁ  Tex.TrustCode112.054nv w   < TheenactmentofSection112.054oftheTexasTrustCodein1984notonlysolidifiedthepowerofcourtstomodifyorterminatetrusts,italsoprovidedaframeworkforsuchproceedings.ItwasbasedonthedoctrineofdeviationasstatedinSection167oftheRestatementoftheLawofTrusts,SecondEdition,andinAmalgamated I` D TransitUnion,LocalDivision1338v.DallasPublicTransitBoard,430S.W.2d107,117(Tex.  F Civ.App."Dallas1968,writ_refd_),cert.denied,396U.S.838(1969).SeeGuidetotheTexas H TrustCode,3rdEdition(1996),p.10.Sincethis YpI statuteformsthebasisforvirtuallyallsuitstomodifyorterminateatrustinTexas,thispaperwillexamineeachofitselementsindetail. D .H-   2c  1  .3  Ԁ  TrusteeorBeneficiaryMayBringSuit.H-*{rney E{   iN &(%%&(#&(%%&(|#Section112.054(a)providesthatatrusteeora   P beneficiarymaypetitionthecourt.A beneficiaryisaperson(whetheranaturalpersonorotherwise) forwhosebenefitpropertyisheldintrust,regardlessofthenatureoftheinterest.Tex.TrustCode111.004(2).Thus,anybeneficiary"income,remainder,contingentremainder"hasstandingtobringamodificationorterminationsuit.Section112.054doesnotauthorizeasettlorto )!@Z bringasuit. } Asettlormaybean interestedpersonforpurposesofSection115.011(the partiessection)andbysuchsectionbeauthorizedtoinitiateaproceedingunderSection115.001(thejurisdictionsection).SeeTex.Trust 9%P!_ Code111.004(7),115.001and115.011(a).Itisunclear,however,ifthisgeneralauthoritytocommenceanactionregardingatrustwouldbesufficientforasettlortosurviveastandingchallengeifthesettlorsoughttoinitiateaSection112.054action. D .H-   2c  2  .3  Ԁ  ActionstheCourtisAuthorizedtoTake.H-rney    +'g &(%%&(#&(%%&(n#Section112.054isentitled JudicialModification Y-p)i orTerminationofTrusts.Nonetheless,itauthorizesthecourttodomorethanmodifyorterminateatrust.UnderSection112.054(a),the /+l courtisauthorizedto:0  Changethetrustee; 0  Modifythetermsofthetrust;)@ 0  Directorpermitthetrusteetodoactsthatare  notauthorizedorthatareforbiddenbythetermsofthetrust;  0  Prohibitthetrusteefromperformingacts    requiredbythetermsofthetrust;or     0 D Terminatethetrustinwholeorinpart. D(#D(# OnecanimaginethemeetingofthecommitteewhichdraftedtheTrustCodewhenthislistwasdeveloped"abunchoftrustlawyersthinkingofallofthethingstheyhadevertriedtodoandbeenfrustratedindoing.Thelistisfairlyallencompassing,butitisinterestingtocompareitwiththelistofthingsacourtisauthorizedtodounderthe jurisdictionsectionofthecode(Section115.001).Thefollowingchartcomparesthetwolists:   ((*Oc*Pddd Xdd Xdd X(#(#, dd",dd"+  /b Qh  /'6$%&(Section112.054(a) Ab,! "b ASection115.001(a) 2(& "  b 2Changethetrustee   $  (3)Appointorremoveatrustee   $  Modifythetermsofthetrust  g~ (4)Determinethepowers,responsibilities,duties,andliabilityofatrustee(6)Makedeterminationsoffactaffectingtheadministration,distribution,ordurationofatrust(7)determineaquestionarisingintheadministrationordistributionofatrust(8)relieveatrusteefromanyoralloftheduties,limitations,andrestrictionsotherwiseexistingunderthetermsofthetrustinstrumentortheTrustCode  Wn% Directorpermitthetrusteetodoactsthatarenotauthorizedorthatareforbiddenbythetermsofthetrust  -D( (4)Determinethepowers,responsibilities,duties,andliabilityofatrustee(6)Makedeterminationsoffactaffectingtheadministration,distribution,ordurationofatrust(7)determineaquestionarisingintheadministrationordistributionofatrust  g~. Prohibitthetrusteefromperformingactsrequiredbythetermsofthetrust  0 (4)Determinethepowers,responsibilities,duties,andliabilityofatrustee(6)Makedeterminationsoffactaffectingtheadministration,distribution,ordurationofatrust(7)determineaquestionarisingintheadministrationordistributionofatrust(8)relieveatrusteefromanyoralloftheduties,limitations,andrestrictionsotherwiseexistingunderthetermsofthetrustinstrumentortheTrustCode  $ 9 Terminatethetrustinwholeorinpart   &"": 4)Determinethepowers,responsibilities,duties,andliabilityofatrustee(6)Makedeterminationsoffactaffectingtheadministration,distribution,ordurationofatrust(7)determineaquestionarisingintheadministrationordistributionofatrust(8)relieveatrusteefromanyoralloftheduties,limitations,andrestrictionsotherwiseexistingunderthetermsofthetrustinstrumentortheTrustCode  +(C   U-l)D (1)Construeatrustinstrument  U-l)E   .*F (2)Determinethelawapplicabletoatrustinstrument  .*G    0 ,H (5)Ascertainbeneficiaries   0 ,I   d (9)Requireanaccountingbyatrustee,reviewtrusteefees,andsettleinterimorfinalaccounts  !   {: (10)Surchargeatrustee#&(%$'6# {: ((#(#(Thoughentitled Jurisdiction,Section115.001ismorethanajurisdictionsection"itisthesubstantivebasisforcausesofaction.Forexample,Section115.001(a)istheonlyauthorityintheTrustCodeforajudicialsettlementofinterimorfinalaccounts.Becauseofthis,andbecauseofthegeneralequitablepowersofthecourtswithrespecttotrusts,itisagoodideatopleadbothSection112.054andSection115.001asbasesformodifyingorterminatingatrust.Then,iftheproofdoesnotexactlymatchthespecificcategoriesexpressedinSection112.054,generalequitableprinciplesandSection115.001canbereliedupon.  .H-   2c  3  .3  Ԁ  FindingsRequired.H-=rney X    ThecourtcantakethesewonderfulactionsunderSection112.054ifitfindsoneofthetwotohaveoccurred:(1)thepurposesofthetrusthavebeenfulfilledorhavebecomeillegalorimpossibletofulfill;or(2)becauseofcircumstancesnotknowntooranticipatedbythesettlor,compliancewiththetermsofthetrustwoulddefeatorsubstantiallyimpairtheaccomplishmentofthepurposesofthetrust.Thesefindingsarevirtuallyidenticaltothose  J" applicableunderthecommonlawdoctrineofdeviation.SeeAmalgamatedTransitUnion,Local +"$ Division1338v.DallasPublicTransitBoard,430 "% S.W.2d107,117(Tex.Civ.App."Dallas1968,writ_refd_),cert.denied,396U.S.838(1969)(quotedatpage'=amalgamated'1  Հabove).Followingisadiscussionofthetworequiredfindings.Notethat,whilethesecondofthetwofindingsismorecommonandonlyoneofthetwofindingsisrequired,itisagoodideatopleadandattempttoprovebothfindings,asthisgivesthefactfindermoreoptionsforresolvingtheissueinonesfavor.&(%%&(   2c  a  .3  Ԁ  PurposesFulfilled/IllegaltoFulfillhty   #&(%%&(# -J(2 Thefirstofthetwopossiblefindingsistheleast +/)4 common.Onemaytakethepositionthatthe /*5 purposesofatrustforaminorhavebeenfulfilledifthebeneficiaryhasattainedalevelofageandmaturitywherethetrustisnolongernecessary.Also,onecanimaginecertainfactpatternswherethetrust,whendrafted,calledforthetrusteetotakecertainlegalactions(forexample,actionsbasedonraceorethnicity)which,throughthepassageoftimeandchangesinthelaw,nowareillegal.Forthemostpart,however,trustsaremodifiedorterminatedbasedonafindingofunknownorchangedcircumstances,discussedbelow.&(%%&(   2c  b  .3  Ԁ  UnknownorChangedCircumstancesĞhty ߞ  #&(%%&(# +B Mostmodificationorterminationsuitsfallwithinthesecondfinding"factsexistwhichwereunknowntoorunanticipatedbythesettlorwhichwillmakecompliancewiththetrusttermsdefeatorsubstantiallyimpairaccomplishmentofthepurposesofthetrust.Awelldraftedtrustinstrumentwillanticipatemanypossibleeventsandprovideameansfordealingwiththeproblemsassociatedwiththoseevents.Evenwelldraftedwillsandtrustscannotanticipateeveryeventoroccurrence,however.HerearechangedorunanticipatedcircumstanceswhichcouldformthebasisofamodificationorterminationproceedingunderSection112.054:0 D Thetrusthasdwindleddowntothepoint #T whereitisuneconomicaltocontinueit. D(#D(# 0 D Trustfeesaresohigh(relativetothesizeof ;& W thetrust)thattheinterestsofthebeneficiariesareimpaired. D(#D(# 0 D Thevariousbeneficiariesaresoacrimonious {):$[ and/orlitigiousthatthetrustmustbemodifiedorterminatedinorderforthe beneficiariesto benefit. D(#D(# 0 D Taxlawshavechanged,orsometaxeffectnot -J(` anticipatedbythesettlorthreatentheenjoymentofthetrustassetsbythebeneficiaries. /*cD(#D(# ЇTherearemanyothercircumstanceswhichmaygiverisetoamodificationorterminationproceeding,butthesegiveanideaofthetypesofcasesand/orfindingswhichoftenareinvolved.Notethat,whileSection112.054isbasedonthecommonlawdoctrineofdeviationandtheRestatementofLawofTrusts,2ndEdition,167,it   doesnotdrawadistinctionbetweendeviatingfromadministrativeprovisionsanddeviatingfromdispositiveprovisions.Therefore,whileBogertmaydrawthosedistinctionsregardingsuitsatcommonlaw(seeBogert,TrustsandTrustees(2nd   Ed.Rev.),561,andthediscussionatpage1U"bogert deviation12  above),Section112.054empowersthecourttomakemodificationsandterminationsevenifthoseactionsaffectthetimingorenjoymentofthetrustdistributionsorproperty.  .H-   2c  4  .3  Ԁ  ConformingtotheIntentoftheSettlor.H-rney    Yp Tex.TrustCode112.054(b)directsthecourttoexerciseitsdiscretion toorderamodificationorterminationunderSection112.054(a) inthemannerthatconformsasnearlyaspossibletotheintentionofthesettlor.Twothingsaboutthisrequirementareimportanttonote:First,itappliesonlyto modificationorterminationorders.DoesthismeanthatitdoesnotapplytotheotheractionspermittedbySection112.054(a),suchaschangingtrustees,orderingthetrusteetodosomethingprohibitedbythetrustinstrumentorprohibitingthetrusteefromdoingsomethingrequiredbythetrustinstrument?OnecanarguethattheintentionsofthesettlorarelessimportanttotheseactionspermittedbySection112.054(a),sothedraftersofthelegislationintendedtomakethisrequirementapplicableonlytomodificationsorterminations.Afterall,changingtrusteesordirectingorprohibitinganactionspecificallyaddressedinthetrustinstrumentnecessarilyrequiresthecourttogoagainstthestatedintentionofthesettlor.Ontheotherhand,itseemspossiblethat modificationorterminationwasjustashorthandwayofsayingthefiveactionspermittedunderSection112.054(a),andtheintentionofthesettlorisimportantwithrespecttoallsuchactions.Second,whilethisrequiresthecourttoconform asnearlyaspossiblewiththesettlorsintention,implicitinSection112.054istheconceptthat /+6 somedeparturefromthesettlorsintentionis 6 permitted,ifnotrequired.Itmakesnosensetohaveastatuteonmodifyingorterminatingtrustsifthecourtcannotveerawayfromthesettlorsintentionatleasttosomedegree. D .H-   2c  5  .3  Ԁ  SpendthriftClausesareaFactorButNotan < Impediment.H-rney ٰ    = Section112.054(b)providesinpart:8 D Thecourtshallconsiderspendthriftprovisionsasafactorinmakingitsdecisionwhethertomodifyorterminate,butthecourtisnotprecludedfromexercisingitsdiscretiontomodifyorterminatesolelybecausethetrustisaspendthrifttrust. D!D! Mostirrevocabletrustsincludespendthriftprovisions"provisionswhichprohibitabeneficiaryfromanticipatinghisorherreceiptoftrustpropertyandwhichprohibitabeneficiaryscreditorsfromattachingthebeneficiarysinterestinthetrust.Theseprovisionsareatleastsomeindicationthatthesettlordidnotwantthebeneficiariestohavethepowertodealwithand/orreceivethetrustpropertypriortothetimefordistributionunderthetrustinstrument.Thus,absentsomementionoftheeffectofaspendthriftclauseinamodificationorterminationstatute,acourtmightfindthattheinclusionofaspendthriftprovisionbyitselfisasufficientreasonnottomodifyorterminateatrustiftheeffectofthemodificationorterminationwouldbetoacceleratethereceiptoftrustpropertybyoneormorebeneficiaries.Ofcourse,inmostcasesspendthriftclausesareincludedaspartoftheadministrativeprovisionsofatrust,ratherthanasanintegralpartofthetrustsdispositiveprovisions.Whenadministrativeprovisionsconflictwiththedispositiveorbeneficialprovisions,ingeneraltheadministrativeprovisionmustyield.SeeBogert,Trustsand '#b Trustees(2ndEd.Rev.),561. y($c Section112.054(b)wiselyprovidesthatthecourtshouldconsiderthespendthriftprovisionasafactor,butthattheinclusionofthespendthriftprovisionisnotanautomaticbartomodificationortermination.Insomecases,thecourtsconsiderationofthespendthriftprovisionmayleadittoconcludethataccelerationofdistributionstobeneficiariesrunscountertothesettlorsprimary /+l intentandwouldnecessarilyfrustratethesettlorspurposesinsettingupthetrust.Inothercases,thecourtmayconcludethatthespendthriftprovisionwasincludedforprophylacticcreditorprotectionorforother,relativelyinsignificantreasons,sothespendthriftprovisionsshouldnotimpedethemodificationorterminationforother,morepressingreasons. i  NotethattheprovisionregardingspendthrifttrustsinSection112.054(b)speaksintermsofthecourtsdiscretionto modifyorterminateatrust,notitsdiscretionregardingchangingtrustees,orderingthetrusteetodosomethingprohibitedbythetrustinstrumentorprohibitingthetrusteefromdoingsomethingrequiredbythetrustinstrument"theotheractionspermittedunderSection112.054(a). i  ((*xQc*Rd d dd" dd"Oc*P(#(#x,xdd +  &b  ( &@  DraftingSuggestion1 u   Incaseswherethespendthriftprovisionisakeypartofthetrust,consideraddingapurposesclause ,  whichmakesitclearthatthespendthriftclauseisnotmereboilerplate.Forexample(moresubtle): | PurposeofTrust. Theprimarypurposeofthistrustistoprovideforthehealth,supportand   maintenanceof[PrimaryBeneficiary]forhislifetimebyprotectingthetrustprincipalfromanticipationby[PrimaryBeneficiary]ortakingbyhiscreditorsduringhislifetime.Thetrusteeshallkeepthispurposeinmindinadministeringthetrustandindeterminingwhetherornottomakedistributionsfromthetrust.Anotherexample(lesssubtle): | PurposeofTrust. Notwithstandingthepowerofthecourttomodifyorterminatethistrust    pursuanttoTex.TrustCode112.054orsimilarstatute,Idirectthatnotrusteeorcourtshallmodifyorterminatethistrustinsuchawaythat[PrimaryBeneficiary]isentitledtoreceivebenefitsfromthistrustsoonerorfasterthanprovidedinthisinstrument.Obviously,thesearenotboilerplatetypechanges"includingthemineverytrustisinappropriateanddefeatsthepurposeofearmarkingthoseoneortwotrustsoutofahundredwherethesettlorwantstotrumpthepowerofthecourttomodifyorterminatethetrustandpayittoaspendthriftbeneficiary.-#!%  b -((#(#(.H-   2c  6  .3  Ԁ  NoJusticiableControversyRequired.H-"rney =   & ProceedingsunderTex.TrustCode112.054donotrequireajusticiablecontroversy.Gregoryv. _!v) MBankCorpusChristi,N.A.,716S.W.2d662 /"F* (Tex.App.--CorpusChristi1986,nowrit).Therefore,amodificationorterminationsuitisnotsubjecttoattackmerelybecausethereisnoactualcontroversybeforethecourt.n   2c  C  .3  Ԁ  ReformationandRecissionnw    '� Reformationsuitsarekintomodificationandterminationsuits,butthebasisforthesuitisdifferent.Reformationsuitsarebasedonmistakesoffactattheinceptionofthetrust,notdeviationfromthetrusttermsduetochangedcircumstances.If,duetoamistakeinthedraftingofthetrustinstrument,theinstrumentdoesnotcontainthetermsofthetrustasintendedbythesettlorandtrustee,thesettlororotherinterestedpartymaymaintainasuitinequitytohavetheinstrument /,; reformedsothatitwillcontainthetermswhichwereactuallyagreedupon.Bogert,TrustsandTrustees(2ndEd.Rev.),991.  = Reformationbasedonmistakemustbebasedonamistakeoffact,notamistakeoflaw.Community "@ Mut._Ins_.Co.v.Owen,804S.W.2d602(Tex. #A App.-Houston(1stDist.)1991,writdenied. $ B However,whilethegeneralruleiswellsettledthatacourtwillnotrelieveagainstamistakeoflaw,itisalsogenerallyheldthatsuchruleisconfinedtomistakeofthegeneralrulesoflaw,andhasnoapplicationtothemistakeofpersonsastotheirownprivatelegalrightsandinterests,sothat,ifpartiescontractunderamutualmistakeandmisapprehensionastosuchrights,theresultisthattheagreementisliabletobesetasideashavingproceededuponacommonmistake.Furnacev. ,(L Furnace,783S.W.2d682,686(Tex. -)M App.-Houston(14thDist.1989,writdismissed _.v*N w.o.j.InFurnace,forexample,thepartieswere //F+O mistakenastowhateffectasalewouldhaveon /,P theirinterestsinatrust.Dictaintheopinionindicatesthatthiswasamistakeoffact,notoflaw,eventhoughlegalinterpretationsofinstrumentswereinvolved.(Despitethedicta,thecourtofappealsinFurnacefoundthatthepartieswaived )@ thisissuebyfailingtosubmititattrial.)Arecenttrendincasesistopermitreformationofthetrusttoachievetheclearlyexpressedintenttosavetransfertaxeseventhoughtheinstrumentwouldotherwisefailtoachievethatintent.Id.For    example,ifthesettlorsintenttosavegenerationskippingtaxesisclearlystatedinthetrustinstrument,thedispositiveprovisionsofthetrustmaybereformedwherenecessarytoeffectuate I`  suchintent._Loeser_Ԁv.Talbot,589N.E.2d301,  412Mass.361(1992).However,inonecaseapplyingTexaslaw,reformationwasdeniedwheretheallegedmistakeastotaxconsequenceswasnottheoverridingreasonforthetrust.In_duPont_Ԁv. )@ SouthernNationalBankofHouston,575F.Supp.  849(S.D.Texas1983),affirmedinpart,vacatedinpart,onotherissues771F.2d849(5thCir.   1985),cert.denied475U.S.1085(1986).In_duPont_,thecourtfoundthattherewasinsufficient 9 P evidencethatthesettlorwouldnothavecreatedthetrustbutforhisallegedmistakeastotaxconsequences.Thecourtapparentlybelievedthattheprimarypurposeofthetrustwastokeeppropertyfromhiswife,nottaxsavings. I`  ((*eSc*Tddxdd xQc*R(#(#e,xdd +  &b   & @ DraftingSuggestion2 Ul   Usetaxsavingsclauses.Theywillnotsaveeverywillortrustwithdraftingerrors,buttheycannot   hurt.Forexample: | SettlorsIntentionRegardingTaxEffects. Itismyintentionthatthe_XYZ_ԀTrustmeetthe e|" requirementsofaqualifiedterminableinterestproperty(QTIP)trustunderSection2056oftheInternalRevenueCode,andthisinstrumentshallbeconstruedand,ifnecessary,reformedtofullyeffectuatesuchintention.-#!%  b -((#(#(Tex.TrustCode112.036expresslypermitsreformationofatrustwhichwouldotherwiseviolatetheruleagainstperpetuities.Ifasettlorneverintendedtocreateatrust,thenrecissionistheproperremedy.In_Wils_Ԁv. 2+ Robinson,934S.W.2d774(Tex.App.-Houston. , (14thDist.)1996,writgranted),judgmentvacated - withoutreachingmerits938S.W.2d717(Tex.1997),thecourtofappealsfoundthatSection112.054(a)(2)wasnotabasisforterminatingatrustwhichthesettlorsaidheneverintendedtocreate;rather,recissionwastheproperremedy,basedonmistake,fraud,duressorundueinfluence.π934S.W.2dat779.Despitetheresultin_Wils_, k%!4 theprudentcourseistopleadandattempttoprovemodificationandterminationunderSection112.054asanalternativetheorywhenrecissionisapossibletheory.n   2c  D  .3  Ԁ  Jurisdictionnt    K*b&: 1&(%%&(Districtcourtsandstatutoryprobatecourtshave +(< jurisdictionovertrustmatters.Tex.TrustCode115.001;Tex.Prob.Code5(d).OthercourtsexercisingprobatejurisdictionhavejurisdictiontohearissuesinvolvingtrustscreatedunderSection867oftheTexasProbateCode(guardianship /,A managementtrusts),buttheydonothavejurisdictionoverothertrustmatters.Tex.TrustCode115.001(d);Tex.Prob.Code869C.Problemscanarisewhenaprobateproceedingispendinginaconstitutionalcountycourtorastatutorycountycourtotherthanastatutoryprobatecourt(a countycourtatlaw)andanissueinvolvingatestamentarytrustarises.Forexample,inawillconstructionsuitinacountycourtatlaw,canthecourthearaconstructionissueinvolvingatestamentarytrustwhichisyettobecreated?Foradiscussionoftheseandotherwonderfulprobatecourtjurisdictionissues,seeFrankN.Ikard,Jr.spaperonProbateJurisdiction,whichwasmostrecentlypresentedtotheAdvancedEstatePlanningandProbateLawCoursein1997(presentedthatyearbyJudgeDonR._Windle_).Mr.Ikardconcludeshisanalysiswithfiverulesgoverningwhethertofileinthedistrictcourtortheprobatecourt.Aftergoingthroughthe appertainingtoestatesand incidenttoestatesanalysisinthefirstfourrules,heconcludeswithRule5:  Whenindoubt,fileinboththeprobatecourtandthedistrictcourtandletyouropponentworryaboutjurisdiction#&(%%1&(@#1&(%%&(. /,\   Foractionswhicheventangentiallyinvolvetrusts,perhapsamodifiedRule5isinorder:  Whenindoubt,fileinadistrictcourtorastatutoryprobatecourt.#&(%%1&(#&(%%&(  #&(%%&(#n   2c  E  .3  Ԁ  Venuen+ F     &(%%&(#&(%%&(#1&(%%&(UnlessGovernorBushvetoesHB2066(which,as 9 P  ofMay20,1999,hadpassedboththeHouseandtheSenateandwasawaitinghisaction),therewillbeanewvenuestatutefortrustmatters,effectiveimmediatelyonGovernorBushssignatureonthebill.Thisvenuechangeisoverdue.Theoldvenuestatute(Tex.TrustCode115.002)wasenactedin1983,whenbranchbankingwasprohibitedinTexas.Theoldstatuteplacedvenueinthecountyinwhichacorporatetrusteesprincipalofficewaslocated.MostbigbankshavetheirprincipalofficesinHouston,Dallasoroutofstate.Thus,evenifabankhasatrustofficeinAustinandperformsmostorallofthetrustactivityinAustin,venuemightbeinDallasorHouston.Thenewstatutereadsasfollows:8    Sec.115.002.VENUE.(a)ThevenueofanactionunderSection115.001ofthisActisdeterminedaccordingtothissection.  8    (b)Ifthereisasingle,_noncorporate_trustee,anactionshallbebrought[ venue ! is ]inthecountyinwhich:" 8      (1)thetrusteeresidesorhas )!@$ residedatanytimeduringthefouryearperiodprecedingthedatetheactionisfiled;or#' 8      (2)thesitusofadministration 9%P!) ofthetrustismaintainedorhasbeenmaintainedatanytimeduringthefouryearperiodprecedingthedatetheactionisfiled[ thetrustee'sresidenceis y($- located ].I)`%. 8    (c)Iftherearemultipletrusteesora *'0 corporate[ any ]trustee,anactionshallbe +'1 brought[ isacorporation,venueis ]inthe ,(2 countyinwhichthesitusof Y-p)3 administrationofthetrustismaintainedorhasbeenmaintainedatanytimeduringthefouryearperiodprecedingthe/+6 datetheactionisfiled,providedthatanactionagainstacorporatetrusteeasdefendantmaybebroughtinthecountyinwhichthecorporatetrusteemaintainsitsprincipalofficeinthisstate[ the )@: corporation'sprincipalofficeislocated,or,iftwoormorecorporationsaretrusteesofthetrust,venueisinthecountyinwhichtheprincipalofficeofanyofthecorporationsislocated ].9 P?D!D! 8 D   (d)Forjustandreasonablecause,  A includingthelocationoftherecordsandtheconvenienceofthepartiesandwitnesses,thecourtmaytransferanactionfromacountyofpropervenueunderthissectiontoanothercountyofpropervenue: D!D! 8 D     (1)onmotionofadefendantorjoinedparty,filedconcurrentlywithorbeforethefilingoftheanswerorotherinitialresponsivepleading,andservedinaccordancewithlaw;or D!D! 8 D     (2)onmotionofaninterveningparty,filednotlaterthanthe20thdayafterthecourtsignstheorderallowingtheintervention,andservedinaccordancewithlaw. D!D! 8 D   (e)Notwithstandinganyotherprovisionofthissection,onagreementbyallpartiesthecourtmaytransferanactionfromacountyofpropervenueunderthissectiontoanyothercounty. D!D! 8 D   (f)Forthepurposesofthissection: D!D! 8 D     (1)"Corporatetrustee"meansanentityorganizedasafinancialinstitutionoracorporationwiththeauthoritytoactinafiduciarycapacity. D!D! 8 D     (2)"Principaloffice"meansanofficeofacorporatetrusteeinthisstatewherethedecisionmakersforthecorporatetrusteewithinthisstateconductthedailyaffairsofthecorporatetrustee.Themerepresenceofanagentorrepresentativeofthecorporatetrusteedoesnotestablishaprincipaloffice.Theprincipalofficeofthecorporatetrusteemayalsobebutisnotnecessarilythesameasthesitusofadministrationofthe /+lD!D! trust.  8      (3)"Situsofadministration"meansthelocationinthisstatewherethetrusteemaintainstheofficethatisprimarilyresponsiblefordealingwiththesettlorandbeneficiariesofthetrust.Thesitusofadministrationmayalsobebutisnotnecessarilythesameastheprincipalofficeofacorporatetrustee[ If 9 P  therearetwoormoretrustees,noneofwhichisacorporation,venueisinthecountyinwhichtheprincipalofficeofthetrustismaintained ].y  Thus,venuenowisproperinthecountyofthe situsofadministration.Itwilltakeawhileforthisphrasetobeconstruedbythecourts.Hopefullyitwillbeinterpretedtomeanthebranchofficewherethesettlororbeneficiaryhascontactwiththetrustee. Situsofadministrationshouldnotbeacountyinwhichanautomatictellermachine(ATM)islocated,buttrusteesshouldnotbeabletoforcevenuewhereitdoesthebackroomnumbercrunchingifithasofficershustlingtrustbusinessoutofabranchbankinanothercounty.Keepinmindthat,whilejurisdictionisamandatoryrequirement,venueispermissive.Ajudgmentinacourtwithoutjurisdictionisvoidorvoidable,butajudgmentinacourtwithjurisdictionbutwithoutpropervenueisvalidandenforceable.Therefore,itispossibletofileafriendlysuit(oranunfriendlysuit,forthatmatter,solongasnooneobjectstovenue)inacountywherevenueisimproperifthatlocationismoreconvenientfortheparties.#&(%%1&(2# )!@$ n   2c  F  .3  Ԁ  PartiestoTermination/ModificationSuitn& A   "& .H-   2c  1  .3  Ԁ  WhoMayInitiateSuit.H-tru )   i$ ( Asnotedatpage3}$interested person32  Հabove,Section112.054(a)oftheTrustCodeprovidesthatatrusteeorabeneficiarymaycommenceanactionunderthatsection,whileSection115.011(a)providesthatany interestedpersonmaycommenceanactionunderSection115.001,thegeneraljurisdictionalstatute.Thisinconsistencymakesitunclearwhetheran interestedpersonwhoisnotatrusteeorbeneficiary(forexample,thesettlor)caninitiateamodificationorterminationsuit.Thedefinitionof interestedpersoninSection111.004(7)wasamendedin1995inresponsetoat /+6 leastonecaseatthetrialcourtlevel(and,therefore,unreported)inwhichthecourtdeterminedthatabeneficiarywasnotan interestedpersonand,therefore,couldnotinitiateanactionunderSection115.001.ThatshouldnotbeaproblemwithanactionunderSection112.054,sincethatsectionspecificallyauthorizesabeneficiarytobringtheaction.Nonetheless,the1995amendmenttoSection111.004(7)makesitclearthat,whileatrusteeorabeneficiaryalwaysisan interestedperson,whetherapersonotherthanatrusteeorabeneficiaryisan interestedpersonforpurposesofbringingatrustcodeaction mayvaryfromtimetotimeandmustbedeterminedaccordingtotheparticularpurposesofandmatterinvolvedinanyproceeding.Amongthosepersonswhohavebeenfoundtonotbe interestedpersonswereafather  G ofminorbeneficiariesseekingtocompelanaccountingorremoveatrustee,Davis_v.Davis_,734 YpI S.W.2d707(Tex.App."Houston(1stDist) )@J 1987,writrefd,n.r.e.),andthesettlorswife,whowasnotatrustee,wasnotabeneficiary,didnotstandtoinheritanytrustassets,andhadnocommunitypropertyinterestincorpusorundistributedincomeoftrust.򀀀_Lemke_Ԁv._Lemke_, 9PO 929S.W.2d662(Tex.App.FortWorth1996,   P writdenied)..H-   2c  2  .3  Ԁ  NecessaryandProperParties.H-tru    yS Oftenthemostdifficultproblemfacinganattorneyseekingtojudiciallymodifyorterminateatrustisdeterminingwhichpartiesarenecessarypartiesandwhicharemerelyproperparties.Thevastmajorityoftrustshavepotentialcontingentbeneficiarieswhoareunknown,undeterminableorsufferingalegaldisabilitysuchasminority.Ifthesepersonsarenecessaryparties,thenanguardianadlitemusuallywillbenecessarytofullyresolvetheproceeding.If,ontheotherhand,thesepersonsmerelyareproperparties,itmaybeunnecessarytohaveanadlitem.TheTrustCodeattemptstobringsomeclaritytotheissueofnecessaryversusproperparties.Tex.TrustCode115.011(b)startsoutbystatingplainlythatcontingentbeneficiariesdesignatedasaclassarenotnecessaryparties.Itthenprovidesthattheonlynecessarypartiesare: +'g 0 D (1)0D(#D(#Abeneficiaryonwhoseactorobligation Y-p)i theactionispredicated; (#(# 0 D (2)0D(#D(#Apersondesignatedbynameinthetrust /+l(#(# instrumentcreatingthetrust;and  0  (3)0Apersonwhoisactuallyreceiving  distributionsfromthetrustestateatthetimetheactionisfiled.  Inthecaseofacharitabletrust,115.001(c)providesthattheattorneygeneralshallbegivennoticeofanyproceedingasprovidedinChapter123ofthePropertyCode.Thatchaptergivestheattorneygeneraltheopportunitytointerveneifhe    seesfit.Abeneficiarywhofirstraisesthemodificationorterminationissuewiththetrustee(theinstigator,sotospeak)probablyisanecessarypartyundersubparagraph(1)ofSection115.011(b).Otherbeneficiariesarenecessarypartieseitherbecausetheyarenamedintheinstrumentorareactuallyreceivingdistributionsfromthetrustwhentheactionisfiled. 9 P ((   k8*e~e*ddxdd xSc*T(#(#ek8k8*e~c*ddxdd xSc*T(#(#ek8,xdd +  &b   & @ DraftingSuggestion3    Considertheimplicationsofincludingthenamesofmultiplegenerationsinatrustinstrument.In   general,itisagoodideatonameonlytheper_stirpetal_Ԁtakers"thosepersonsrepresentingtheirbranchesofthefamilytree"andnotmoreremotedescendants.Example1(manypotentialnecessaryparties): | MyDescendants. Ihavetwochildren,RhondaRussellandRonnieRussell.RhondaRussellhas e| threechildren,Rita,RudolphandRodney.RonnieRussellhasfourchildren,Rebecca,Rusty,_Ricky_andReese. | DistributiononTrustTermination. Uponmywifesdeath,thetrustshallterminateandbe ! distributedamongmydescendants,perstirpes.Example2(fewerpotentialnecessaryparties): | MyDescendants. Ihavetwochildren,RhondaRussellandRonnieRussell.Allreferencesinthis & willto mydescendantsaretothesetwochildrenandtheirdescendants. |  DistributiononTrustTermination. Uponmywifesdeath,thetrustshallterminateandbe +B) distributedamongmydescendants,perstirpes.-#! +  b -((#(#(Whatdoes actuallyreceivingdistributions...atthetimetheactionisfiledmean?Surelyitcannotbelimitedtobeneficiariesactuallyreceivingdistributionsattheinstantthelawsuitisfiled,forthiswouldusuallyyieldnonecessaryparties.Attheotherextreme,surelyitdoesnotmeanpersonstowhomdistributionsarepossibleatthetimethesuitisfiled"forexample,descendantsoftheprimarybeneficiaryincaseswherethetrusteeholdsaspraypower.Themoreprobablemiddlegroundincludeseachpersonwhohasreceiveddistributionsfromthetrustandwhosebasisforreceivingthosedistributionshasnotterminated.Thisisagoodreasonnottoroutinelyincludespraypowersinbypasstrusts.Forothers,seeGlennKarischspaper, ProtectingtheSurvivingSpouse /,< presentedtothe1999SouthwesternLegalFoundationWillsandProbateInstitute.Section115.011largelyisa_recodification_Ԁofthepredecessorstatute"Section24CoftheTexasTrustCode.Therefore,TexascasesdecidedpriortotheenactmentoftheTrustCodein1983arerelevantontheissueofnecessaryparties..H-   2c  3  .3  Ԁ  VirtualRepresentationandRelatedIssues.H-tru    +6'E Sometimesitisimpossibletogetallbeneficiariesbeforethecourtduetothestatusofsomeofthebeneficiaries.Beneficiarieswhoareminors,incapacitated,unbornorunascertainedcannotthemselvesparticipateinajudicialmodificationor /,K terminationproceeding.Trusteesandotherpersonsinterestedinthetrustunderstandablyarereluctanttotakeactionsinvolvingthetrustwhichdonotbindtheseotherbeneficiaries.Ofcourse,onealternativeistohaveaguardianoftheestateoraguardianadlitemappointedforsuchpersons.Tex.TrustCode115.014(a)authorizesthecourttoappointoneormoreguardiansadlitemifthecourtdeterminesthattherepresentationofthosepersonsinterestsotherwisewouldbeinadequate.Tex.TrustCode115.013(c)(2)(A)providesthat,totheextentthereisnoconflictofinterestbetweentheguardianadlitemandthepersonsrepresented,anorderbindingtheguardianadlitembindsthe ward.Thereisanotherwaytobindminors,unbornandunascertainedbeneficiariesinsomecasesvirtualrepresentation.Thedoctrineofvirtualrepresentationexistsatcommonlawindependentofstatute.See,e.g.,Masonv.Mason,366S.W.2d  552(Tex.1963);_Starcrest_ԀTrustv.Berry,926  S.W.2d343(Tex.App.Austin,1996);_Hedley_  Feedlot,Inc.v._Weatherly_ԀTrust,855S.W.2d826 i (Tex.App.Amarillo1993,nowrit);andCitizens 9P StateBankv._Bowles_,663S.W.2d845(Tex.App.    Houston[14thDist.]1983,writ_dism'd_).Inaddition,however,thedoctrinehasbeencodifiedinSection115.012(c)oftheTrustCode.UnderSection115.013(c),ifthereisnoconflictof 0 interestandnoguardianoftheestateorguardian   adlitemhasbeenappointed,aparentmay ! representhisminorchildasguardianadlitemorasnextfriend.Also,anunbornorunascertainedpersonwhoisnototherwiserepresentedisbound )!@$ byanordertotheextenthisinterestisadequately !% representedbyanotherpartyhavingasubstantially "& identicalinterestintheproceeding. #' Whilethisstatutorystatementofvirtualrepresentationislimitedtoparentsactingfortheirminorchildrenandotherbeneficiariesactingforunbornorunascertainedpersons,thecasesdonotappeartolimitvirtualrepresentationtominorsand_unborns_.See,e.g.,Masonv.Mason,366S.W.2d I)`%. 552(Tex.1963).Also,theMasoncasemakes *0&/ clearthatthedoctrineofvirtualrepresentationisnotlimitedtobeneficiariesrepresentingotherbeneficiaries.InMason,itwasthetrusteewho ,(2 wasfoundtohavevirtuallyrepresentedthebeneficiariesinasuitchallengingthevalidityof ).@*4 thetrust. 4 Normally,onlypartiesmayappealajudgment.An 6 exceptionexistsforpersonsrepresentedinacasebyvirtualrepresentation.Eventhoughtheyarenot )@8 actuallyjoinedinaproceedingandmadeanactualparty,theyprobablyhavetherighttoappealthejudgment"theymaybeboundbythejudgmentwhenitbecomesfinal,buttheyhaveanindependentrighttoappealitbeforeitbecomesfinal.SeeAmericanPhysiciansInsurance  > Exchangev.Cardenas,717S.W.2d707(Tex.  ? App.SanAntonio1986,writrefd,n.r.e.);_Grohn_Ԁv._Marquardt_,487S.W.2d214(Tex.Civ. y A App.SanAntonio1972,writrefdn.r.e.).Thisrightofappealshouldbefactoredintothepartiesdecisionaboutwhenitisappropriatetomakedistributionsfollowingajudicialmodificationortermination"bettertowaituntilthejudgmentbecomesfinalandbindingonvirtuallyrepresentedpartiesbeforedolingoutthemoney.IfabeneficiaryisnotanecessarypartyunderSection115.011,andifheorsheisnotrepresentedintheproceedingbyaguardian,aguardianadlitemorbyvirtualrepresentation,thatbeneficiaryisnotboundbythejudgment..H-   2c  4  .3  Ԁ  AnalysisofNecessaryParties,Virtual P Representation,andAdLitemRequirementsinModificationandTerminationProceedings.H-/tru /   I`R Thevirtualrepresentationstatute(Section115.013(c)andthenecessarypartiesstatute(Section115.011)providesasafeharborinmostcaseswheretrustmodificationorterminationissought"ifallofthenecessarypartiesdescribedinSection115.011canbeservedorotherwisebroughtintothesuit,ifallminorscanberepresentedbytheirparentswithoutaconflictofinterest,andiftheinterestsofallunbornorunascertainedpersonsareadequatelyrepresentedbyanotherpartyhavingasubstantiallyidenticalinterest,thenaguardianadlitemgenerallycanbeavoidedandthepartiescanhaveamoderatelevelofcomfortthatthemodificationorterminationorderwillbebindingonallbeneficiaries.Ifsomeoralloftheserequirementscannotbemet,thenoneormoreadlitemsprobablyarenecessaryunderSection115.014.Itisusefultoexaminethesefactorsinthefollowinghypothetical: ).@*h (( /+h Їl8*ee*ddxdd x~c*(#(#el8l8*ec*ddxdd x~c*(#(#el8,xdd +  &b  &@LL VirtualRepresentationHypothetical  Md AssumeSettlorScreatesanirrevocabletrustwithTastrustee,incometoIforlife,remaindertoRonthedeathofI,ortoRsdescendantsperstirpesifRpredeceasesI.NoneofRsdescendantsareadults. )  b ) Example1: AssumeIandRareadultswithcapacity.Twishestomodifythetrusttoinvestin )@ equities.(SrequiredtheinvestmentinFDICinsuredaccountsonly,butTbelievesScouldnothaveanticipatedthecircumstancesnowpresented,withlowinterestratesonaccountsandhighreturnonequities.)T,IandRarenecessaryparties"eachisnamedinthetrustinstrument.Rcanvirtuallyrepresenthisminorchildren(theresnoconflictofinterest,sinceRsinterestisidenticaltothoseofhischildrenonthisissue),andRcanvirtuallyrepresentunbornandunascertainedpersons(hecanadequatelyrepresenttheirinterest,andtheyhaveasubstantiallyidenticalinterestwithR).     Example2: AssumeIisanadultwithcapacity,whileRisIsminorchild.Twishestomodifythe 0  trusttoinvestinequities.T,IandRarenecessaryparties"eachisnamedintheinstrument.IcannotvirtuallyrepresentR,however,sincethereisaconflictofinterest.(Investmentinequitiesaffectstheincomeinterestandtheremainderinterestdifferently.)Also,IsinterestisnotsubstantiallyidenticaltothatofRsdescendants,soIcannotvirtuallyrepresentthoseunbornorunascertainedpersons.AguardianadlitemisneededforRandRsdescendants,butonlyoneadlitemoughttobeneeded,sincetheinterestsofRandRsdescendantsareidentical.    Example3: AssumeIandRareadultswithcapacity.Iwantstoterminatethetrustearlyandhaveall    ofthetrustpropertydistributedtoI.Riswillingtoagree,andTiswillingtopermittheterminationifacourtordersit.T,IandRarenecessaryparties"eachisnamedinthetrustinstrument.Intheory,atleast,Rcanvirtuallyrepresenthisminorchildren,sincetheresnoconflictofinterestandsinceRsinterestsareidenticaltothoseofhischildrenonthisissue.Similarly,intheory,atleast,Rcanvirtuallyrepresentunbornandunascertainedpersons(hecanadequatelyrepresenttheirinterest,andtheyhaveasubstantiallyidenticalinterestwithR).Inreality,however,itisnotclearthatvirtualrepresentationwouldbindRsdescendants,sinceRisbasicallygivingupthestore"yes,hisinterestsareidentical,buthesdoingnothingtoprotectthoseinterests.Theminutetheterminationisapproved,hisinterestsandthoseofhisdescendantsgoaway.Aguardianadlitemprobablyisneeded.Theguardianadlitemmaydeterminethat,notwithstandingthatRsdescendantsgetnothingdirectlyfromthisplan,itneverthelessmaybebeneficialtoRsdescendantsbecausetherewillbelessmoneyeatenupintrustfeesandRsdescendantsmayeventuallygetsomething.  m#%  Example4: AssumeIandRareadultswithcapacity.Iwantstoterminatethetrustearlyandhave $ & partofthetrustpropertydistributedtoIandpartofthetrustpropertydistributedtoR.Riswillingtoagree,andTiswillingtopermittheterminationifacourtordersit.T,IandRarenecessaryparties"eachisnamedinthetrustinstrument.Rcannotvirtuallyrepresenthisminorchildrenorotherdescendants,sincetheresaconflictofinterestundertheplan,RgetspartofthetrustpropertyandRsdescendantsdonot.Aguardianadlitemisneeded.Theguardianadlitemmaydeterminethat,notwithstandingthatRsdescendantsgetnothingdirectlyfromthisplan,itneverthelessmaybebeneficialtoRsdescendantsbecausetherewillbelessmoneyeatenupintrustfeesandRsdescendantsmayeventuallygetsomething.  -,D(/  Example5: AssumeIandRareadultswithcapacity.Iwantstoterminatethetrustearlyandhave )d partofthetrustpropertydistributedtoIandpartofthetrustpropertydistributedtoR.Riswillingtoagree,butTisunwillingtoconsent.Twillagreetohavethetrustmodifiedsothat_noncorporate_trusteesarepermittedandIbecomesthetrustee.IandRagreetoproceedwiththismodificationrather thanthemodification.T,IandRarenecessaryparties"eachisnamedinthetrustinstrument.Rcanvirtuallyrepresenthisminorchildren(theresnoconflictofinterest,sinceRsinterestisidenticaltothoseofhischildrenonthemodificationissue),andRcanvirtuallyrepresentunbornandunascertainedpersons(hecanadequatelyrepresenttheirinterest,andtheyhaveasubstantiallyidenticalinterestwithRonthemodificationissue).  M   Example6: AssumeIandRareadultswithcapacity.T,IandRagreetohavethetrustmodifiedso   that_noncorporate_ԀtrusteesarepermittedandIbecomesthetrustee.Shortlyafterthejudicialmodification,I,astrustee,distributesallofthetrustpropertytoIandR.T,IandRarenecessaryparties"eachisnamedinthetrustinstrument.Ifthepostmodificationwasnotprearranged,Rpresumablycanvirtuallyrepresenthisminorchildren(theresnoconflictofinterest,sinceRsinterestisidenticaltothoseofhischildrenonthemodificationissue),andRcanvirtuallyrepresentunbornandunascertainedpersons(hecanadequatelyrepresenttheirinterest,andtheyhaveasubstantiallyidenticalinterestwithRonthemodificationissue).However,thedeallooksfishy,andRsdescendantsmighthaveabasistocomplainaboutIsandRsactionsuponattainingmajority.    ((#(#(   2c  III  .3  Ԁ  NONJUDICIALMODIFICATIONOR  TERMINATIONM M    Inmanycases,itmaynotbenecessarytoresorttoajudicialproceedingtomodifyorterminateatrust.(Ofcourse,thetrusteemaywishtogetthecourtsblessingtothemodificationorterminationinsomecasesevenifthereisanonjudicialbasisformodificationortermination.0  X   n   2c  A  .3  Ԁ  ActionsPermittedbytheTrustInstrumentnO O   $:" Clearly,thebestwaytomodifyorterminateatrustnonjudiciallyistodosoinaccordancewiththetrustinstrument.Therefore,thedrafterofthetrustinstrumentcandoalottomakelifeeasier"orharder"fortrusteesorbeneficiarieswholaterwanttomodifyorterminatethetrust.  .H-   2c  1  .3  Ԁ  ExpressProvisionsoftheTrustInstrument.H-Qrney R   O,$+ &(%%&(Manytrustsincludeprovisionswhichexpresslypermitthetrusteeorotherstomodifyorterminatethetrustincertaincircumstances.Somemodificationorterminationprovisionsarequite _0(0 broad,butcaremustbetakennottogivethepersonholdingthepowertomodifyorterminatea  generalpowerofappointmentforfederalgiftandestatetaxpurposes.Hereareseveralexamplesofmodificationandterminationclauses:#&(%%&(R#&(%%&(   2c  a  .3  Ԁ  TerminationofSmallTrust Uhty (U  #&(%%&(T#&(%%&( _#8 #&(%%&(U#&(%%&(Acommon(andveryuseful)provisionisonethatgivesthetrusteethepowertoterminateatrustifthetrustcorpusbecomessosmallthatitiseitherinconvenientortooexpensivetomaintainthetrust.Ifthetrusteeisabeneficiaryofthetrustwhomighttakeaportionofthetrustupontermination,oneormoreofthefollowingshouldbeusedtoavoidgivingthetrustee/beneficiaryageneralpowerofappointment:0 D Barthetrusteefromreceivingadistribution -Z%D underthisprovision.Forexample,providethat,ifthetrusteewouldotherwisereceivethepropertyupontheexerciseofthispower,heorsheshallbedeemedtohavediedpriorto _0(HD(#D(# thetrustterminationforpurposesofdeterminingwhogetstheproperty.  0  Providethatthepowerisnotexercisableby Yp thetrusteeifheorshewouldreceivealloranyportionofthepropertyonterminationofthetrust.Thenthetrusteecanresignandasuccessortrusteebeappointedifnecessary.  0  Givethepowertosomeoneelse,orshareit 9 P  withapartyholdinganadverseinterest.Forexample,providethat,ifthetrusteewouldotherwisereceivethepropertyupontheexerciseofthispower,thetrustwillterminateunderthisprovisiononlywiththejoinderofalloftheadult_nonincapacitated_Ԁbeneficiariesoftheoldestgeneration.  0  Makethepowertoterminateasmalltrust  ariseonlywhenthetrustcorpusreachesasufficientlylow,objectivestandard.Forexample,providethatthetrusteecanterminateatrustunderthisprovisiononlyifthetrustcorpusis$25,000orless.Thisshouldlimitthegeneralpowerofappointmentproblemto$25,000,evenifthetrusteeistheonlypersonmakingtheterminationdecision.  Whilethesedraftingsuggestionsmayhelpavoidaprobleminthefuture,theyalsohelpfocusonesattentiononanecessarydetailwhenadvisingatrusteeofatrustwhichincludessuchaprovision"alwaysbeawareofthepotentialgeneralpowerofappointmentproblemandadvisethetrustee ! accordingly.#&(%%&(TV#&(%%&( ! #&(%%&(_#&(%%&(   2c  b  .3  Ԁ  TrustMergerand/orDivision%`hty @`  #&(%%&(`#&(%%&( # #&(%%&(a#&(%%&(Manytrustinstrumentsgivethetrusteethepower(oraffirmativelydirect)tomergeordividetrustseithersolelyinthetrusteesdiscretionorupontheoccurrenceofcertainevents.Tex.TrustCode112.057,discussedbelow,authorizesthetrusteetodivideatrustnonjudiciallyevenifthetrustinstrumentdoesnotincludeanexpressprovision,butthetrustinstrumentmaygivethetrusteemuchbroaderauthorityregardingtrustdivision.Forexample,thetrustinstrumentcanmandatethatatrustbedividedintotwoshares,onewithagenerationskippingtax(GST)inclusionratioofzeroandonewithaGSTinclusionratioofone,ratherthanpermittingeventhepossibilityofasingletrustwithaGSTinclusionratioofbetweenzeroandone.Also,thetrustinstrumentcanauthorizedivisionormergerforanyreason,notjusttaxreasonsasprovidedinSection112.057.#&(%%&(na#&(%%&(   2c  c  .3  Ԁ  TerminationDuetoTaxChangesRehty me  #&(%%&(3e#&(%%&( 8 #&(%%&(Cf#&(%%&(#&(%%&(f#&(%%&(Farlesscommonbutpotentiallyusefulisa 9P: provisionpermittingterminationofthetrustintheeventoftaxlawchanges.Theseareparticularlyusefulwhendraftinglongtermgenerationskippingtrustsordynastytrusts.Theseclausesareparticularlytrickywhenitcomestoavoidingthegeneralpowerofappointmentproblem.Heresanexample: A ((m8*ee*ddxdd xc*(#(#em8m8*ec*ddxdd xc*(#(#em8,xdd +  &b a xA & @ DraftingSuggestion4  B  | ChangeofLaw. 󀀀Intheeventofachangeineitherstateorfederallaw,includingachangeinthe e"|D interpretationoftaxlaws,orintheeventofanyotherunforeseencontingencyandasaresultoneormoreoftheprovisionsofthisTrustarenolongerappropriateorworktothebenefitofthebeneficiariesasoriginallyintendedbytheSettlor,thentheprimarycurrentincomebeneficiaryorbeneficiariesmayappointanattorneywhomustbeBoardCertifiedinEstatePlanningandProbateLawbyaStateBoardofLegalSpecialization.Ifabeneficiaryisunderage18orunderalegaldisabilitythenaparentorguardianmayactforthebeneficiaryforpurposesofthisparagraph.Theattorneysoappointedshallhavethepowertomodifythetrustonlytotheextentnecessarytoaccommodatethechangeinlaworcircumstancesuchthatthepurposeofthetrustasitaffectsthebeneficiariesshallnotbethwarted.Thisshallincludeanychangesnecessarytoobtainthesameorsimilartaxtreatmentaswasinitiallyintended.Thispowershallbelimitedbywhateverextentisnecessarytoinsurethatitnotconstituteageneralpowerofappointmentfortaxpurposes.#&(%%&(f#&(%%&(-#!Y+p'O  b -#&(%%&(n#((#(#(.H-   2c  2  .3  Ԁ  TerminationbyDistribution.H-orney o   -)P &(%%&(#&(%%&(op#Evenifthetrustinstrumentcontainsnoexpress +/B+R modificationorterminationprovision,itmaybe /,S possibletoterminatethetrustbydistributingallofthetrustpropertytothebeneficiariesunderthemandatoryordiscretionarydistributionstandards.Thetrusteemaybereluctanttofullyexhaustthe /,V trustbydistributiontotheincomebeneficiaries,sincepresumablytheremainderbeneficiariesmayquestionthisaction.Forthisreason,itisagood  ideatoincludeaprovisionindicatingthatthesettloranticipatesthatthetrusteemayexhaustthetrustbydistribution.Heresanexample:  (( 1H n8*ee*ddxdd xc*(#(#en8n8*ec*ddxdd xc*(#(#en8,xdd +  !b  !@  DraftingSuggestion5  e|  |   TerminationbyDistribution. Atrustwillterminateifallincomeandprincipalispaidout   undermandatoryordiscretionarypowersgrantedinsuchtrust.(   b (((#(#(Atrustterminateswhenthereisnoresremaining,sothisprovisionprobablyisnotnecessary,butitgivesthetrusteesomecomfortindistributingthoselastdollarstotheincomebeneficiary,sincepresumablythesettlorwouldnothaveincludedsuchaprovisionifheorshehadnotanticipatedthispossibility.Anotherwaytomakeiteasierforthetrusteeto  terminateatrustbydistributiontotheincomebeneficiaryistoincludeaconflictofinterestprovisionfavoringtheincomebeneficiary.Whilethismaynotbeappropriateineverycase,inthevastmajorityofcasesthesettlorismoreconcernedwithsustainingtheincomebeneficiariesthanwithleavingabigpileofmoneybehindfortheremainderbeneficiaries.Heresanexample:  (( 3J o8*ee*ddxdd xc*(#(#eo8o8*ec*ddxdd xc*(#(#eo8,xdd +  &b  &@  DraftingSuggestion6  g~  |   ConflictsofInterest. Irealizethatinthecourseoftheadministrationofmyestate,inthe  courseofmakingdistributionofestateassets,inthecourseofvaluinganyestateproperty,andinthecourseofadministeringanytrustsestablishedhereunder,certainconflictsofinterestmaydevelopbetweenmywifeandourdescendants,betweenthevariousclassesofbeneficiariesorbetweenthefiduciaryinthecapacityofpersonalrepresentativeandthefiduciaryinthecapacityoftrustee,andthebeneficiaries.Intheresolutionofanyconflictofinterest,Idirecteachfiduciaryfirsttomakeareasonableefforttodeterminetheoveralleffectoftheconflictintheadministrationofmyestateandofthetrustortrustshereincreatedandthentomakereasonableeffortstoresolvetheconflictbymutualagreementoftherespectivebeneficiaries.Intheeventthatmutualagreementcannotbereachedaftersuchreasonableefforts,thenmyfiduciaryshallresolvesuchconflictsinitssolediscretionbaseduponthefollowingpriorities:8 |   (1)0L |\!|\!Mywifeshallbefavoredattheexpenseofourdescendants.!)L \!L \! 8 | 8|\!|\!(2)0L Amongourdescendants,ourchildrenshallbefavoredattheexpenseofmore k#+ remotedescendants. L L  8 | 8|\!|\!(3)0L Lifetenantsshallbefavoredattheexpenseofremaindermenofwhatever %!. class. L L  -#!{'#0  b -((#(#(Evenifthetrustinstrumentdoesnotincludeanexpressmodificationorterminationprovision,thetrusteemaybeabletoterminateatrustbydistributingtheremainingassetspursuanttoafacilityofpaymentprovision.Tex.TrustCode113.021providesarudimentaryfacilityofpaymentprovisionfortrustswithnobroaderexpressprovision.Itpermitsthetrusteetomakea -0D,9 distributionrequiredorpermittedtobemadetoaminororincapacitatedbeneficiaryinoneofseveralways,includingtoacustodianundertheUniformTransferstoMinorsAct.Ofcourse,awelldraftedtrustusuallyhasamuchbroaderfacilityofpaymentprovisionwhich,forexample,maynotbelimitedtominorsorincapacitatedpersons.Theseprovisionscanprovidethemeans -0D,@ forgettingpropertyoutofacumbersome,expensivetrustintoaformthatismorebeneficial  tothebeneficiary.Followingisanexampleofabroaderfacilityofpaymentprovision:  (( ax p8*ee*ddxdd xc*(#(#ep8p8*ec*ddxdd xc*(#(#ep8,xdd +  &b  &@  DraftingSuggestion7  e|  | RecipientsofDistributions. Anyauthorizeddistributions(eitherfrommyestateorduringthe   termofatrustoruponfinaldistributionofatrust)may,inmyfiduciary'ssoleandabsolutediscretion,bemade(1)toorforthebenefitofthebeneficiary,(2)directlytothebeneficiary,(3)onbehalfofthebeneficiaryforthebeneficiary'sbenefit,(4)toanyaccountinabankorsavingsinstitutioneitherinthenameofsuchbeneficiaryorinaformreservingtitle,managementandcustodyofsuchaccounttoasuitablepersonfortheuseofsuchbeneficiary,(5)inanyformofannuity,(6)inallwaysprovidedbylawsdealingwithgiftsordistributionstoorforminors(includingbutnotlimitedtotheTexasUniformTransferstoMinorsAct)orpersonsunderdisability,and(7)toanysuitablepersonwithwhomthebeneficiaryresidesorwhohasthecareorcontrolofthebeneficiary,withoutobligationtoseetothefurtherapplicationofsuchdistribution,andthereceiptfordistributionbyanysuchpersonshallfullydischargemyfiduciaries.-#!)@  b -((#(#(n   2c  B  .3  Ԁ  TerminationandModificationPermittedby [r Statuten    +B Evenifthetrustinstrumentcontainsnoprovisionauthorizingmodificationorterminationofthetrust,theTrustCodemaycontainaprovisionthatmakesitpossibletoaccomplishthesamepurpose..H-   2c  1  .3  Ԁ  RevocationbySettlor.H-ύrney     Unlikemoststates,inTexasatrustisrevocablebythesettlorunlessitisirrevocablebytheexpresstermsoftheinstrument.Tex.TrustCode112.051.Thetrustinstrumentshouldbeexaminedforanexpress_irrevocability_Ԁclause.Ifthetrustisrevocable,thenofcoursethesettlorcanterminateitandmodifyitatwill,providedthatthesettlorcannotenlargethetrusteesdutieswithoutthetrusteesconsent.Id. "$ .H-   2c  2  .3  Ԁ  TerminationbyOccurrenceofEvent.H-rney    $ & Althoughitalmostgoeswithoutsaying,atrustterminatesifbyitstermsthetrustistocontinueonlyuntiltheexpirationofacertainperiodoruntilthehappeningofacertaineventandtheperiodoftimehaselapsedortheeventhasoccurred.Tex.TrustCode112.052..H-   2c  3  .3  Ԁ  Merger.H-rney    +(/ Tex.TrustCode112.034isacodificationofthedoctrineofmerger.Itprovidesthatasettlordoesnotcreateatrustifheretainsbothlegaltitleandallequitableinterestsorifhetransfersbothlegal /,4 titleandallequitableintereststothesameperson.Also,Section112.034providesthatatrustterminatesifthelegaltitletothetrustpropertyandallequitableinterests(otherthanasettlorsbeneficialinterestprotectedunderaspendthrifttrust)inthetrustbecomeunitedinoneperson.Thisdoctrinerarelyapplieswithmostmoderntrusts(orattemptsattrust)sincethereusuallyisoneormoreremainderbeneficiariesotherthanthesettlor..H-   2c  4  .3  Ԁ  DivisionofTrustforTaxPurposes.H-rney -   Kb? Section112.057oftheTrustCodepermitsthetrusteetodivideatrustintotwoormoreseparatetrustswithoutajudicialproceeding ifthetrusteereasonablydeterminesthatthedivisionofthetrustcouldresultinasignificantdecreaseincurrentorfuturefederalincome,gift,estate,generationskippingtransfertaxes,oranyothertaximposedontrustproperty.Thesectionsetstheparametersoftrustdivisionsunderthestatute,whichgenerallyaremorerestrictivethanthosewhichasettlormayimposeinanexpressprovision..H-   2c  5  .3  Ԁ  AmendmentofCharitableTrusts.H-rney 9   ($M Section112.055oftheTrustCodeprovidesforcertaintaxorientedprovisionstobeincludedinatrustinstrumentgoverningprivatefoundationsandcertainsplitinteresttrustsbyoperationoflaw,whileSection112.056permitsthesettlorofatrustandthetrusteeofatrusttoconsenttosuchamendmentsnonjudicially. /,V n   2c  C  .3  Ԁ  TerminationbyAgreementofSettlorand  BeneficiariesnX s    Althoughthebeneficiariesofaspendthrifttrustmaynotalienateorencumbertheirinterestinthetrustproperty,aspendthrifttrustmaybemodifiedorterminatedbytheconsentofallthepartiestoit.Ifasettlorofatrustisaliveandallofthebeneficiariesofanirrevocablespendthrifttrustconsent(andtherebeingnoincapacitytoconsentbyanyoftheparties),thesettlorandallofthebeneficiariesmayconsenttoamodificationorterminationofthetrust._Musick_Ԁv.Reynolds,798   S.W.2d626(Tex.App._Eastland_Ԁ1990,nowrit); y  _Becknal_Ԁv.Atwood,518S.W.2d593(Tex.Civ. I`  App.Amarillo1975,nowrit);andSayersv. 0  Baker,171S.W.2d547(Tex.Civ.App._Eastland_   1943,nowrit).Texascaselawappearstomakenoprovisionthatthetrusteeconsentorevenbeapartytotheagreementtomodifyorterminateaspendthrifttrust.Incontrast,Section112.051(b)oftheTexasTrustCodeprovidesthatthesettloro