Also known as: adequate protection · adequate protections · adequate protection doctrine
Written by attorneys · grounded in primary & secondary sources — see below
A condition required for judicial approval of a trust modification or termination when fewer than all beneficiaries consent. The court must determine that the proposed change would have been permissible with unanimous consent and that the interests of any nonconsenting beneficiary remain safeguarded against loss or impairment.
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Sandra serves as trustee of an irrevocable trust holding family manufacturing shares. Two adult beneficiaries consent to converting a remainder into a special-needs trust and selling a minority stake. The third remainderman objects. The court approves the modification after finding that protective covenants in the sale agreement and continued income rights leave the objecting remainderman's economic position intact.
Two of three remainder beneficiaries petition to terminate an irrevocable trust and distribute principal early. The nonconsenting beneficiary objects, citing risk of lost future appreciation. The court grants termination after requiring the trustees to retain a reserve fund and obtain insurance, thereby leaving the objector's interest adequately protected.
A court may approve the modification if it would have been permissible with unanimous consent and if the interests of any nonconsenting beneficiary are adequately protected. Protective covenants and continued income rights can satisfy the protection requirement even if the objector loses some governance participation.
Supporting sources
…and the property may deteriorate from extended use. Adjustments in the interest rate and secured creditor demands for more “adequate protection,” 11 U. S. C. § 361, do not fully offset these risks. See 90 F. 3d, at 1066 (Smith, J., dissenting) (“vast majority of reorganizations fail ... leaving creditors with only a fraction of the…