MTA § 14.5-410 permits a termination of an irrevocable trust if the trustee and all beneficiaries agree to the termination and the continuation does not achieve a material purpose of the trust. The requirement that a termination not violate a “material purpose” of the trust “carries forward the Claflin rule, first stated in the famous case of Claflin v. Claflin, 20 N.E. 454 (Mass. 1889).” UTC § 411 cmt. The Claflin court did not allow the termination of a trust which held that the decedent’s son was to receive installments of principal in 3 stages: when he was 21, 25 and 30 years of age. In Claflin, the beneficiary’s interest could be assigned by him and so it “can be taken by his creditors to pay his debts” but the restrictive schedule of payments nevertheless was deemed a “a material purpose.”
Prior to enactment of MTA § 14.5-410, the Maryland rule permitted termination when all beneficiaries consented and the termination was not contrary to the settlor’s intention. Indeed, the settlor’s wishes in creating the trust being paramount to the wishes of the beneficiaries. Probasco v. Clark, 58 Md.App. 683, 688, 474 A.2d 221, 223 (1984).
The adoption of MTA § 14.5-410 represents a softening of a no-termination result that might be inferred from a strict following of the settlor’s “wishes” when it focuses instead on whether continuation fulfills a “material purpose.” The UTC comment makes a useful distinction: “The requirement that the trust no longer serve a material purpose before it can be terminated by the beneficiaries does not meant that the trust has no remaining function. In order to be material, the purpose remaining must be of some significance …”
MTA § 14.5-410(b) provides that “the existence of a spendthrift provision … does not prevent a termination of a trust …” Prior law uniformly prohibited termination of a trust if it had spendthrift provisions. Kirkland v. Mercantile Safe Deposit & Trust Co., 218 Md. 17, 145 A.2d 230 (1958); Mahan v. Mahan, 320 Md. 262, 577 A.2d 70 (1990). Although the existence of a spendthrift provision no longer is deemed per se a “material purpose” one still must demonstrate that the provision is not a material purpose of the trust in question. The UTC describes the basis for this provision: equating a spendthrift provision as a material purpose “is troublesome because spendthrift provisions are often added to instruments with little thought. … The question is whether that was the intent of a particular settlor is instead a matter of fact to be determined on the totality of the circumstances.” UTC cmt. 411.
Under the UTC provisions, the Maryland Act requires consent of the trustee as well as the beneficiaries.
