Legal Definitions - Claflin-trust principle

The Claflin-trust principle is a legal doctrine that dictates when a trust can or cannot be terminated or significantly altered by its beneficiaries. According to this principle, beneficiaries cannot end a trust if doing so would go against a fundamental reason or "material purpose" for which the person who created the trust (known as the "settlor") originally established it. This rule applies even if all the beneficiaries agree to terminate the trust.

This principle is often cited as a prime example of "deadhand control," where the original wishes and intentions of the settlor, even after their death, take precedence over the current desires and needs of the living beneficiaries. However, if the settlor is still alive and consents to the modification or termination of the trust, it can usually be changed or ended, unless the trust was specifically designed to be irrevocable.

Here are some examples illustrating the Claflin-trust principle:

• Example 1: Age-Based Distribution

  A grandmother establishes a trust for her grandson, specifying that he will receive regular income payments until he turns 35, at which point he will receive the entire principal amount. When the grandson is 28, he decides he wants to use the principal early to invest in a new business venture and asks the trustee to terminate the trust and distribute the funds. All other potential beneficiaries (if any) also agree.

  How it illustrates the principle: The grandmother's material purpose in setting up the trust was to ensure her grandson reached a certain level of maturity and financial experience before gaining full control of a substantial sum of money. Allowing him to access the principal seven years early would directly defeat this protective purpose, and therefore, the Claflin-trust principle would prevent the early termination of the trust.

• Example 2: Spendthrift Protection

  A father creates a spendthrift trust for his adult daughter, who has a history of accumulating significant debt and struggling with financial management. The trust is designed to provide her with a steady income stream for life, but it explicitly prevents her from accessing the principal or assigning her interest to creditors. Years later, the daughter incurs a large personal loan and wants to terminate the trust to pay off the debt. Her children, who are remainder beneficiaries, also agree to the termination.

  How it illustrates the principle: The father's material purpose was to protect his daughter from her own financial imprudence and to ensure she had a secure source of income, free from the claims of creditors. Terminating the spendthrift trust would directly undermine this core protective purpose, allowing the daughter to deplete the assets and exposing them to creditors, thus violating the Claflin-trust principle.

• Example 3: Ongoing Support and Discretionary Control

  A philanthropist establishes a trust to provide lifelong financial support for a specific animal sanctuary, granting the trustee broad discretion over how funds are distributed annually to best meet the sanctuary's evolving needs. After several years, the sanctuary's board of directors (who are effectively the beneficiaries) decides they would prefer to receive a lump sum payment to build a new, larger facility, rather than ongoing discretionary distributions. They petition the trustee to terminate the trust and distribute all remaining assets.

  How it illustrates the principle: The philanthropist's material purpose was to ensure continuous, flexible support for the animal sanctuary over the long term, with the trustee's discretion being key to adapting to future needs. Terminating the trust for a lump sum distribution would defeat this purpose of ongoing, managed support and the settlor's intent for the trustee to exercise discretion, making it impermissible under the Claflin-trust principle.