Can You Modify or Terminate a Trust Established in Maryland?

A trust can be a useful tool to accomplish many different things. Individuals establish trusts in order to get tax benefits, set aside money for friends and loved ones, ease estate planning processes, and more. However, sometimes, it comes to pass that a trust is no longer needed, the person who created it wants to end it, or its terms need to be updated. When these situations arise, can you modify or terminate the trust?

In Maryland, trusts can be terminated or modified under certain circumstances, such as a mechanism outlined in the trust, a determination by the trustee, the death of the beneficiary, and other circumstances outlined by statute. In some cases, it is up to a court to decide whether a trust should be modified or terminated.

If you have trust modification or termination needs, call Rice, Murtha & Psoras’s Maryland estate and trusts lawyers at (410) 694-7291.

How a Trust Can Be Terminated in Maryland

There are many different ways that a trust can terminate in Maryland, all laid out in Md. Code, Ests. & Trs. Art., § 14-406:

Death of Beneficiary

If the trust beneficiary passes away, the trust will terminate under Maryland law. Remember that trusts exist to work for the beneficiary, so if there is no beneficiary alive, there is no purpose for the trust. Things can get more complicated if there is more than one beneficiary or if the beneficiary is not a person there is more than one beneficiary, the trust will not terminate when only one of them dies. You should discuss your concerns with our Baltimore estate and trust lawyers to find the best course of action in those circumstances.

Predetermined Date

Another way a trust can terminate is if it is designed to do so. A trust document can have a specified date or event that terminates the trust. For example, suppose a grantor sets up a trust to pay for the beneficiary’s college tuition. There may be language in the trust documents that provides for termination upon the beneficiary’s graduation from college.

Unlawful Purpose

Trusts can only be made to do lawful things. If a trust is found to have an unlawful purpose, such as laundering money, it can be terminated.

Revocable Trusts

Thus far, the ways that trusts can be terminated all apply to what are called “irrevocable trusts.” These trusts are harder for the person who sets them up to change or modify. Revocable trusts are different. They are often set up with the grantor also being the trustee. Therefore, they have a lot of power in determining what happens to the trust. A revocable trust, as the name would suggest, can be terminated when the trustee decides it wants to.

How a Trust Can Be Modified in Maryland

If the desire is not to completely end the trust but to modify it, there are other steps you must take under Md. Code, Ests. & Trs. Art., § 14.5-411.

Unanticipated Circumstances

If circumstances arise that were not anticipated by the grantor, a trust can be modified in Maryland to fit those circumstances better. For example, suppose a grantor sets up a trust to pay for the beneficiary’s college tuition when the beneficiary is 14 years old. By the time the beneficiary turns 18, they have decided they wish to join the armed forces instead of going to college, and this is a surprise to the grantor. At that point, you can petition the court to change the terms of the trust to better serve its purpose. Here, you may be able to change the terms to benefit the young person in other ways, such as helping them to buy a house instead of paying for college. You also might be able to get the court to terminate the trust altogether if you so desire.

Mistake of Fact or Law

Under Md. Code, Ests. & Trs. Art., § 14.5-413, trusts can be modified if they were made with an incorrect assumption about facts or laws. A mistake of fact is a mistake involving a material fact of the trust. For example, suppose a trust has ”my son, David, as a beneficiary, but later on, it is determined through DNA tests that David is not the grantor’s son. In that case, carrying out the trust is impossible because there is no such person as their son David. Instead, you may be able to get the court to modify the trust to work as the grantor intended and have its assets benefit David by removing the “my son” part.

A mistake of law, on the other hand, is an incorrect assumption about the legality or legal effect of a given act. The incorrect thing is not a fact, but about how the law will affect that fact. For example, suppose someone made a trust without understanding the tax consequences of doing so. In that case, a court can modify the trust based on that mistake of law.

Dividing and Consolidating Trusts in Maryland

There is also the option to modify trusts by dividing them into multiple trusts or merging trusts into a single one. This is detailed under Md. Code, Ests. & Trs. Art., § 14.5-415. If you can prove to the court that it is warranted, you can consolidate or divide trusts. This can only happen if the court determines that the division or combination of trusts is beneficial to the beneficiaries or otherwise works towards accomplishing the purposes of the trust.

Beneficiaries have the option to object to the division or combination of a trust if they do so in writing within 30 days of getting notice of the imminent trust change. If you are in a situation like this, you should discuss it with our attorneys.

Discuss Your Needs with Our Estate and Trusts Lawyers Today

Let our Dundalk, MD estate and trusts lawyers help you with your situation when you call Rice, Murtha & Psoras at (410) 694-7291.