Ending or Changing a Trust

• Author: Eileen E. Gillese, Martha Milczynski
• Pages: 76-98

CHAP TER 5

ENDING OR

CHANGING A TRUST

A. INT RODUCTION

When a trust comes to an end, we generally think of it ending “natu-

rally” — the situation where the tr ustees have fully distributed the

trust property to the benef‌iciaries 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 tr ust corpus,

in whole or in part; the benef‌iciar ies may want to call for the proper ty

earlier than i s provided for under the tru st; or one of the parties may

wish to leave the tr ust afoot, but alter its terms. In rare ca ses — fraud,

undue inf‌luence, duress, misrepres entation, or mistake — court s may

be asked to set the tr ust aside.

This chapter explores when and how termination and alteration

can occur. First, we consider how the settlor may init iate termination,

and then we examine how benef‌ici aries can c ause the premature end-

ing of the t rust th rough use of t he principle i n Saunders v. Vautier.

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

a desire to keep the tr ust mechanism i n place but to change or modify

some aspect of its functioning or structure. As part of our discussion

on alteration, we will consider the issue of amendment, which, when

achieved through use of an amending power in the trust document,

does not require court approval. As wel l, we will consider var iation of

trusts, which is achieved through the cour ts.

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Ending or Cha nging a Trust 77

The limitations inherent in variation of trust legislation must be

understood, if only to illustrate how important it is to include broad

amending powers with in trust document s. As well, an appreciation of

the legislative const raint s governing variation applicat ions is helpf ul

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

conjunction w ith an ex amin ation of the v ariat ion of tru st legisl ation,

we will discuss the lim ited capacity of the common law to prov ide for

variation of trusts.

B. TERMINATION OF THE TRUST

1) Revocation by the Settlor

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

assets unles s he or she retained a power of revocation when the trust

was created. A power of revocation enables the sett lor to intervene and

set the trust a side, or call for the return of all or a part of the tr ust prop-

erty after its creation.

A power of revocation must be clearly and expre ssly reserved at the

time the trust is created. Creation occurs at the time of constitution.

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

in the trustee. In the case of testamentary trusts, constitution occurs

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

trust propert y is conveyed to the trustee s. Thus, unless a declarat ion

of trust is made for valuable consideration, the creator of a trust is free

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

without constitution.

Because testamentary tr usts are constituted on death, t he issue of

revocation is relevant only to inter vivos trust s. In the case of testamen-

tary tr usts, before death (and therefore before constitution) the testator

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

revoke, so the issue does not ari se.

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

Why can the creator of a tru st not revoke the property wit hout a power

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

is created, the creator is d ivested of title — legal title vest s in the trust-

ee, and equitable title vests in the benef‌iciaries. The creator, therefore,

has no title to the propert y, no claim to any rights over the property,

and no right to exercise any power in respect of it.

For many years, it was unclea r in Canada whether the courts would

accept, as valid, tru sts that had been cre ated with a power of revoca-