How To ‘Actually’ Terminate The Marge Puka Irrevocable Trust?

by | Dec 25, 2023 | Family Disputes

What are the steps to effectively dissolve the Marge Puka Irrevocable Trust?

In the Powers v. Puka lawsuit series, our aim is equity and to ensure that the successor trustees and grantor acted for the benefit of all beneficiaries – upon their potential unilateral termination of the Marge Puka Irrevocable Trust.

Section 1.03 An Irrevocable Trust

This trust is irrevocable, and I may not alter, amend, revoke, or terminate it in any way. Notwithstanding anything in this agreement or state law to the contrary, under no circumstances may this trust be altered, amended, revoked, or terminated in any way that benefits me during my lifetime.

Section 1.03 of the trust document clearly states that the trust is irrevocable.

Here’s an explanation of what this means:

  1. Irrevocable Nature of the Trust: The declaration that the trust is irrevocable means that once it is established, the settlor (the person who created the trust) cannot change, cancel, or end the trust. This is a defining characteristic of irrevocable trusts, distinguishing them from revocable trusts which can be altered or ended by the settlor.
  2. Prohibition Against Changes by the Settlor: The language “I may not alter, amend, revoke, or terminate it in any way” is an explicit statement that the settlor relinquishes all rights to modify the trust in any form once it is created. This includes changes to the terms, beneficiaries, or any other aspect of the trust.
  3. No Benefit to the Settlor: The clause “under no circumstances may this trust be altered, amended, revoked, or terminated in any way that benefits me during my lifetime” further emphasizes that the trust cannot be modified in any manner that would provide a direct benefit to the settlor during their lifetime. This is an important aspect, as it reinforces the purpose of the irrevocable trust to serve the interests of the beneficiaries, rather than the personal interests of the settlor.
  4. Legal and Tax Implications: Such a clause is often included to meet specific legal and tax objectives. Irrevocable trusts are commonly used for estate planning, asset protection, and tax planning purposes. By making the trust irrevocable and prohibiting changes that benefit the settlor, the trust assets are typically removed from the settlor’s taxable estate, potentially leading to significant tax advantages.
  5. State Law Considerations: The phrase “Notwithstanding anything in this agreement or state law to the contrary” indicates that the irrevocability of the trust supersedes any other provisions in the trust document or state laws that might allow for alterations. This adds an extra layer of certainty to the irrevocable nature of the trust.

Section 1.03 clearly establishes the trust as irrevocable, explicitly stating that the settlor cannot modify, revoke, or terminate the trust, especially in any way that would benefit them.

This irrevocability is a crucial aspect of the trust, affecting its management, legal standing, and tax implications.

Section 2.11 Provisions for Trust Protector

(i) Authority to Terminate Trusts If, at any time, the Trust Protector determines that any trust created under this agreement is no longer economical or is otherwise inadvisable to administer as a trust, or if the Trust Protector deems it to be in the best interest of the beneficiaries, the Trust Protector, without further responsibility, may terminate the trust and distribute the trust property, including any undistributed net income, to the beneficiaries of trust principal.

Section 2.11 regarding the “Provisions for Trust Protector” in the trust document introduces the role and authority of a Trust Protector, specifically concerning the termination of the trust.

Here’s a breakdown of what this means:

  1. Role of the Trust Protector: A Trust Protector is a party appointed to oversee the trust, with powers to take specific actions under certain circumstances. This role is distinct from that of the trustee and is often included in modern trust documents to provide additional oversight and flexibility.
  2. Authority to Terminate Trusts: This section grants the Trust Protector the authority to terminate the trust. This is a significant power, as typically, the termination of an irrevocable trust is not straightforward and may require unanimous consent of beneficiaries or court approval.
  3. Conditions for Termination:
    • Economical or Administrative Viability: The Trust Protector can decide to terminate the trust if it becomes no longer economical or advisable to administer. This might be the case if the costs of managing the trust exceed the benefits, or if the trust’s assets have depleted to a point where it’s no longer functional.
    • Best Interests of Beneficiaries: The Trust Protector also has the authority to terminate the trust if they deem it to be in the best interest of the beneficiaries. This broad clause allows for termination based on a range of circumstances that might positively affect the beneficiaries.
  4. Distribution upon Termination: Upon deciding to terminate the trust, the Trust Protector has the power to distribute the trust property and any undistributed net income to the beneficiaries of the trust principal. This means that the Trust Protector can decide how the trust’s assets should be allocated among the beneficiaries.
  5. Absence of Further Responsibility: The phrase “without further responsibility” suggests that once the Trust Protector exercises this power to terminate the trust, they are not held responsible for subsequent matters related to the trust. This might be included to protect the Trust Protector from legal liability arising from their decision to terminate the trust.
  6. Implications: The inclusion of such a provision adds a layer of flexibility to the management of the trust. It allows for the termination of the trust under certain conditions, even though it is irrevocable, and acknowledges that changing circumstances might warrant such a decision for the benefit of the beneficiaries.

Section 2.11 outlines a significant power vested in the Trust Protector, allowing them to terminate the trust under specific circumstances.

This provision reflects a pragmatic approach to trust management, acknowledging that there might be situations where terminating the trust is the most sensible course of action for the benefit of the beneficiaries.

Section 9.03 No Court Proceedings

This trust shall be administered expeditiously, consistent with the provisions of this  agreement, free of judicial intervention, and without order, approval, or action of any court. The trust shall be subject to the jurisdiction of a court only if my Trustee or another interested party institutes a legal proceeding. A proceeding to seek instructions or a court determination shall be initiated in the court having original jurisdiction over matters relating to the construction and administration of trusts. Seeking instructions or a court determination shall not subject this trust to the continuing jurisdiction of the court. I request that any questions or disputes that may arise during the administration of this trust be resolved by mediation and if necessary, arbitration in accordance with the Uniform Arbitration Act. Each interested party involved in the dispute (including my Trustee, if involved) shall select an arbiter and, if necessary to establish a majority decision, the arbiters selected shall select an additional arbiter. The decision of a majority of the arbiters selected shall control with respect to the matter.

Section 9.03 of the trust document outlines a set of provisions related to the administration and legal proceedings involving the trust.

Here’s a detailed explanation of this section:

  1. Expeditious Administration: The trust is to be administered promptly and efficiently, following the terms outlined in the trust agreement. This means that the trustee should manage the trust’s assets and fulfill its obligations without unnecessary delay.
  2. No Judicial Intervention: The trust is intended to operate without the need for judicial intervention. This implies that the trust’s administration and decision-making should be handled by the trustee and other relevant parties as specified in the trust agreement, without requiring court orders, approvals, or actions.
  3. Court Jurisdiction: The trust becomes subject to the jurisdiction of a court only if either the Trustee or another interested party initiates a legal proceeding. In other words, court involvement is triggered when a legal dispute or issue arises that requires judicial resolution.
  4. Proceeding for Instructions or Determination: If there is a need for instructions or a court determination regarding the trust’s construction or administration, a legal proceeding can be initiated. This proceeding should take place in a court that has original jurisdiction over trust-related matters.
  5. Limited Court Jurisdiction: Importantly, seeking instructions or a court determination does not automatically subject the trust to ongoing or continuous court jurisdiction. The trust remains subject to court jurisdiction only during the specific legal proceeding, and once the matter is resolved, it returns to being administered outside of court involvement.
  6. Dispute Resolution by Mediation and Arbitration: The trust document expresses a preference for resolving any questions or disputes that may arise during the trust’s administration through alternative dispute resolution methods. Specifically, it recommends mediation and, if necessary, arbitration.
  7. Arbitration Process: In the event that arbitration is required, the process involves each interested party in the dispute, including the Trustee if involved, selecting an arbiter. If necessary to establish a majority decision, the arbiters chosen will collectively select an additional arbiter. The decision of the majority of these arbiters will determine the resolution of the matter.

Section 9.03 of the trust document emphasizes the desire for the trust’s administration to proceed smoothly and without the need for judicial intervention.

It outlines the circumstances under which court jurisdiction is invoked and provides a framework for alternative dispute resolution, such as mediation and arbitration, to address any questions or disputes that may arise during the trust’s administration.

This section aims to streamline the trust’s management while ensuring that legal matters can be addressed when necessary through defined procedures.

Section 10.20 Real Estate Powers 

My Trustee may enter into leases and grant options to lease trust property even though the term of the agreement extends beyond the termination of any trusts established under this agreement and beyond the period that is required for an interest created under this agreement to vest in order to be valid under the rule against perpetuities.

Section 10.20, titled “Real Estate Powers,” of the trust document provides specific authority to the Trustee regarding real estate transactions. Here’s an explanation of this section:

  1. Leases and Options: This section grants the Trustee the power to enter into leases and grant options to lease trust property. In essence, it allows the Trustee to rent out trust-owned real estate and provide others with the opportunity to lease it.
  2. Term of Agreements: Importantly, this power extends to agreements that have terms or durations that go beyond the termination of any trusts established under this agreement. In other words, the Trustee can make leasing agreements that continue even after the trust or trusts created by the agreement have ended.
  3. Rule Against Perpetuities: The section further specifies that these lease agreements can extend beyond the period required for an interest created under the trust agreement to vest and remain valid under the “rule against perpetuities.” The rule against perpetuities is a legal principle that limits the duration of certain types of property interests to ensure that they do not last indefinitely and tie up property indefinitely.

Section 10.20 grants the Trustee the authority to engage in real estate transactions involving leasing trust-owned property.

It allows for flexibility in the duration of lease agreements, permitting them to extend beyond the termination of the trust(s) created by the agreement and beyond the period required for property interests to vest under the rule against perpetuities.

This flexibility provides the Trustee with the ability to effectively manage and derive income from trust-owned real estate.

Section 11.01 Maximum Term for Trusts

Notwithstanding any other provision of this agreement to the contrary, unless terminated earlier under other provisions of this agreement, each trust created under this agreement terminates upon the expiration of the longest period that property may be held in trust under this agreement without violating the applicable rule against perpetuities. If the maximum term for trusts under the applicable rule against perpetuities is determined by reference to the death of the last to die among a group of individuals, the group of individuals will consist of the descendants of my maternal and paternal grandparents, who are alive at the relevant time. At that time, the remaining trust property will vest in and be distributed to the persons then entitled to receive mandatory distributions of net income of the trust and in the same proportions to which they are entitled to receive the net income. If no beneficiary is entitled to receive mandatory distributions of net income, then the remaining trust property will vest in and be distributed to the beneficiaries then entitled to receive discretionary distributions of net income of the trust, in equal shares

Section 11.01, titled “Maximum Term for Trusts,” outlines the conditions and procedures for the termination of trusts created under the agreement, specifically in relation to the maximum duration allowed by the “rule against perpetuities.”

Here’s a detailed explanation of this section:

  1. Termination Based on Maximum Perpetuity Rule: This section establishes that each trust created under the agreement will automatically terminate upon the expiration of the longest period that property may be held in trust without violating the applicable “rule against perpetuities.” The “rule against perpetuities” is a legal principle that limits the duration of certain property interests to prevent them from lasting indefinitely.
  2. Determining the Maximum Term: The maximum term for trusts, as determined by the rule against perpetuities, can vary based on legal requirements and jurisdiction-specific rules. This section ensures that the trusts comply with these legal limits.
  3. Group of Individuals for Calculation: If the maximum term is determined by reference to the death of the last individual among a specified group, this section defines that group. In this case, the group consists of the descendants (i.e., offspring and their descendants) of the settlor’s maternal and paternal grandparents who are alive at the relevant time. This means that the trust’s duration is linked to the lifespans of specific family members.
  4. Distribution of Remaining Trust Property: When a trust is set to terminate due to the maximum term allowed by the rule against perpetuities, the remaining trust property is distributed among the beneficiaries. This distribution is based on the following principles:
    • If there are beneficiaries entitled to receive mandatory distributions of net income at that time, the remaining trust property is distributed to them in the same proportions to which they are entitled to receive the net income.
    • If there are no beneficiaries entitled to mandatory distributions of net income, the remaining trust property is distributed among the beneficiaries who are entitled to receive discretionary distributions of net income, with each receiving an equal share.

In essence, Section 11.01 ensures that the trusts established under the agreement adhere to the legal limits imposed by the rule against perpetuities.

It provides a mechanism for the orderly termination of trusts when they reach the maximum allowed duration, and it outlines the criteria for distributing the remaining trust property among beneficiaries in a fair and structured manner.