Common use of Restatements Clause in Contracts

Restatements. The Restatement (Second) Trusts in section 337 cmt. L, states “If by the terms of the trust…….the interest of one or more beneficiaries is made inalienable by him, the trust will not be terminated …..although all the beneficiaries desire to terminate it or one beneficiary acquires the whole beneficial interest and desires to terminate it.” The Restatement (Third) Trusts takes a contrary position. Section 65 cmt. e states “……spendthrift restrictions are not sufficient in and of themselves to establish, or to create a presumption of, a material purpose that would prevent termination by consent of all of the beneficiaries… A spendthrift clause may be included as a routine or incidental provision of a trust (unimportant or even unknown to the settlor)… ” Massachusetts cases have taken the position that early termination of a trust upon the request of the beneficiary(ies) will frustrate a material purpose of the settlor. In the leading case of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, 149 Mass. 19 (1889) (provided), the Court held early termination of a trust would run counter to the testator’s intentions. In this case, the trust provided that upon attaining ages 21 and 25 the beneficiary would receive $10,000 and at age 30 the trust would terminate and be distributed to him. After attaining age 21 but before attaining age 25 the beneficiary petitioned for termination of the trust. The petition for termination was denied and the beneficiary appealed. The Court upheld the decision 099998‐000523 ACTIVE/131269131.2 denying the beneficiary’s request to terminate the trust. In its opinion the Court noted that the beneficiary’s interest in the trust was vested and absolute and that no other person had an interest in it. Even though the beneficial interest was fully vested the Court held that the testator’s purpose in creating the trust had not been fulfilled and there was no reason why the intention of the testator should not be carried out. Interestingly, the trust did not have a spendthrift clause, but the Court noted the fact that the testator did not impose all possible restrictions on the beneficiary’s interest is no reason not to carry out the testator’s intention. In West V. Third National Bank of Hampden County, 11 Mass. App. Ct. 577 (1981), the Court reversed a lower court decision approving early termination of a trust. (provided) As noted MUTC Section 411 does not adopt the Unform Act’s provision that a spendthrift clause is not a material purpose. The MUTC Committee’s comments to section 411 state that a spendthrift clause is a material purpose. Another important issue is that all interested persons are correctly identified and consent to the NJSA. The virtual representation provisions of the MUTC allow for consent even where there are minor, unborn and unascertained beneficiaries without the appointment of a guardian ad litem. The determination of who may represent whom is critically important. As In re ▇▇▇▇▇▇▇▇ illustrates, an NJSA will not be binding if all interested persons have not consented. Further, failure to correctly determine who may represent others allows those beneficiaries not properly represented to challenge the NJSA.

Restatements. The Restatement (Second) Trusts in section 337 cmt. L, states “If by the terms of the trust…….the interest of one or more beneficiaries is made inalienable by him, the trust will not be terminated …..although all the beneficiaries desire to terminate it or one beneficiary acquires the whole beneficial interest and desires to terminate it.” The Restatement (Third) Trusts takes a contrary position. Section 65 cmt. e states “……spendthrift restrictions are not sufficient in and of themselves to establish, or to create a presumption of, a material purpose that would prevent termination by consent of all of the beneficiaries… A spendthrift clause may be included as a routine or incidental provision of a trust (unimportant or even unknown to the settlor)… ” Massachusetts cases have taken the position that early termination of a trust upon the request of the beneficiary(ies) will frustrate a material purpose of the settlor. In the leading case of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, 149 Mass. 19 (1889) (provided), the Court held early termination of a trust would run counter to the testator’s intentions. In this case, the trust provided that upon attaining ages 21 and 25 the beneficiary would receive $10,000 and at age 30 the trust would terminate and be distributed to him. After attaining age 21 but before attaining age 25 the beneficiary petitioned for termination of the trust. The petition for termination was denied and the beneficiary appealed. The Court upheld the decision 099998‐000523 ACTIVE/131269131.2 denying the beneficiary’s request to terminate the trust. In its opinion the Court noted that the beneficiary’s interest in the trust was vested and absolute and that no other person had an interest in it. Even though the beneficial interest was fully vested the Court held that the testator’s purpose in creating the trust had not been fulfilled and there was no reason why the intention of the testator should not be carried out. Interestingly, the trust did not have a spendthrift clause, but the Court noted the fact that the testator did not impose all possible restrictions on the beneficiary’s interest is no reason not to carry out the testator’s intention. In West V. Third National Bank of Hampden County, 11 Mass. App. Ct. 577 (1981), the Court reversed a lower court decision approving early termination of a trust. (provided) As noted MUTC Section 411 does not adopt the Unform Act’s provision that a spendthrift clause is not a material purpose. The MUTC Committee’s comments to section 411 state that a spendthrift clause is a material purpose. Another important issue is that all interested persons are correctly identified and consent to the NJSA. The virtual representation provisions of the MUTC allow for consent even where there are minor, unborn and unascertained beneficiaries without the appointment of a guardian ad litem. The determination of who may represent whom is critically important. As In re ▇▇▇▇▇▇▇▇ illustrates, an NJSA will not be binding if all interested persons have not consented. Further, failure to correctly determine who may represent others allows those beneficiaries not properly represented to challenge the NJSA.