Ending or Changing a Trust

• Author: EILEEN E. GILLESE
• Pages: 80-103

80

CHA PTER 5

ENDING OR

CHANGING A TRUST

A. INTRODUC TION

When a trust comes to an end, we generally t hink of it ending “natur-

ally” — the situation where the tr ustees have fully dist ributed the trust

property to the benef‌iciar ies in accordance with the ter ms of the trust.

There are other possibilities, however: before distr ibution, the settlor

may wish to intervene and retrieve or redirect the trust cor pus, in

whole or in part; the benef‌iciarie s may want to call for the property

earlier than is provided for under the trust; or one of the parties m ay

wish to leave the trust afoot, but alter its terms. In rare cases — fraud,

undue inf‌luence, duress, misrepresent ation, or mistake — courts may

be asked to set the trust aside.

This chapter explores when and how termi nation and alteration

can occur. First, I consider how the settlor may initiate termination,

and then I examine how benef‌iciaries can cause t he premature ending

of the trust through use of the principle in Saunders v Vautier.

Alteration of the trust is de alt with separately, since it presupposes

a desire to keep the tru st mechanism in place but to change or modif y

some aspect of its functioning or str ucture. As part of the dis cussion

on alteration, I will consider the is sue of amendment, which when

achieved through use of an amending power in t he trust document,

does not require court approval. As well, I will consider variation of

trusts, which i s achieved through the courts.

Ending or Chan ging a Trust 81

The limitations inherent in var iation of trust legislation must be

understood, if only to illustrate how import ant it is to include broad

amending powers within trust documents. As well, an appreciation of

the legislative constraints governing variation applications is helpful

in understanding how and when recourse to t he courts is useful. In

conjunction with an examin ation of the variation of trust legi slation,

I will disc uss the limited capacity of t he common law to provide for

variation of trusts.

B. TER MINATION OF THE TRUST

1) Revocation by the Settlor

Once a trust is cre ated, the settlor cannot retrieve any part of t he trust

assets unles s he or she reta ined a power of revocation when the trust was

created. A power of revocation enables the settlor to intervene and set

the trust aside, or ca ll for the retu rn of all or a part of the trust property

after its creation.

A power of revocation must be clearly and expressly res erved at the

time the tru st is created. Creation occurs at the time of constitution.

Constitution, in general terms, occurs when trust property is vested

in the trustee. In t he case of testamentar y trusts, const itution occurs

at the time of death. Inter vivos trusts are constituted when title to the

trust property i s conveyed to the trustees. Thus, unless a decl aration

of trust is made for valuable consideration, the cre ator of a trust is free

to revoke at any time before constitution occurs, since there is no tr ust

without con stitution.

Because testamentary trust s are constituted on death, the issue of

revocation is relevant only to inter vivos t rusts. In the case of testament-

ary tru sts, before death (and therefore before constitution) the testator

may revoke at any time. After death, there is no one with the power to

revoke, so the issue does not arise.

Why can a power of revocation not be inserted after constitution?

Why can the creator of a trust not revoke the property without a power

of revocation? The answer to both questions is the same. When a t rust

is created, the creator is divested of title — legal title vests in the t rustee,

and equitable title vests in t he benef‌iciaries. The creator, therefore, has

no title to the property, no claim to any rights over t he propert y, and no

right to exercise any power in respect of it.

For many years, it was unclear in Ca nada whether the courts would

accept, as valid, t rusts th at had been cr eated with a power of revocation.