7.5 Spendthrift Clauses and Trust Termination
Maryland follows the general American rule that a trust may be terminated when all beneficiaries consent to the termination and when termination is not contrary to the settlor’s intention. Probasco v. Clark, 58 Md. App. 683, 474 A.2d 221 (1984). When a trust contains a spendthrift provision, however, one of the material purposes of the trust is the protection afforded a beneficiary by that clause. Consequently, a trust containing a spendthrift provision may not be modified by a Maryland Court regardless of whether all beneficiaries consent:
“These cases and many others in Maryland have upheld the immunity of spendthrift trusts from attempted invasion by creditors of the beneficiaries. A necessary corollary of such a policy is that spendthrift trusts must be immune from attempts by the beneficiaries themselves to reach the corpus. As Dean Griswold has pointed out, to permit premature termination by the beneficiaries, either in whole or in pro tanto, would amount to an assignment of the corpus, the very thing that a restraint on alienation, such as we have in the case at bar, forbids. Griswold, ‘Spendthrift Trusts,’ (2 Ed.) § 517, 517.1. If a beneficiary be forbidden to assign her interest in the trust, should she be allowed to accomplish the same result by termination? We think the answer is apparent. The purpose of the restraint on alienation such as the one in this trust is not only to protect the beneficiaries from the claims of creditors, but also to assure the maximum annual income.”
Kirkland v. Mercantile Safe Deposit & Trust Co., 218 Md. 17, 23, 145 A.2d 230, 233 (1958). See also Mahan v. Mahan, 320 Md. 262, 577 A.2d 70 (1990) (“[W]e hold that paragraph six of Frances’s deed of trust created a spendthrift trust, and that a spendthrift trust cannot be terminated by the consent of the beneficiaries, even though all are sui juris and all join in seeking termination.”)
The Kirkland case is instructive as to the type of circumstances where a spendthrift clause may, in fact, injure the beneficiary that the trust was presumably established to protect. In Kirkland, a mother established a trust to protect her three daughters. The trust directed ‘all income’ to go to the daughters but no distributions of corpus. Almost forty years after the mother’s death, one of the two remaining daughters suffered a stroke and ‘was left in such a condition that she was unable to care for herself, which involved expenses in excess of the income from the trust.’ Kirkland at 21. The remaining daughter – who was guardian for the sister – sought a termination of the trust so that principal could be used for her sister. It was under those circumstances that the Court held that the trust could not be terminated. With the addition of ‘ § 104â€² of the new Uniform Principal and Income Act, Maryland law provides a trustee with a partial potential remedy to this sort of situation.