Irrevocable trusts are just that, irrevocable. They cannot be revoked with the assets being returned to the grantor or settlor who created and funded the irrevocable trust. Most irrevocable trusts also do not provide for the amendment of the irrevocable trust, except to keep the irrevocable trust in compliance with the tax law or certain other laws. There are at least two instances in which it is possible to change the otherwise unchangeable, or modify an irrevocable trust. This month's article will discuss Nonjudicial Settlement Agreements. Next month, we will post an article about decanting.
In October of 2004, New Hampshire enacted its own version of a uniform law, the Uniform Trust Code, RSA 564-B, which is also in place in many other states. Although there are many useful provisions of the Uniform Trust Code, one of the most helpful is the authority for 'œinterested persons' to enter into a nonjudicial settlement agreement.
The parties who may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust are the parties who would have to consent if there were a court approved settlement with respect to the matter. Typically, the Trustee and all of the current and future beneficiaries must sign off on a nonjudicial settlement agreement. If a beneficiary is a minor, there is another section of the Uniform Trust Code that authorizes a parent who does not have a conflict of interest with respect to the matter to represent the parent's minor. Also, if there is another beneficiary in the same position as the minor, that beneficiary could represent and bind the otherwise unrepresented minor along with binding himself or herself.
If you are the grantor of an irrevocable trust you may be relieved to know that nonjudical settlement agreements are only valid if the agreement does not violate a material purpose of the trust. For example, if a parent creates an irrevocable trust to hold assets for the benefit of a financially irresponsible child for life, a nonjudicial settlement agreement may not be entered into just because the child wants the assets and the trustee is tired of policing the child. It would be possible, however, to modify the trust through a nonjudicial settlement agreement to provide for a different trustee to take over if all of the trustees listed in the original trust have become disenchanted with the beneficiary.
The statute lists matters that may be resolved with such an agreement including: the interpretation or construction of the terms of the trust; the approval of a trustee's report or accounting; direction to a trustee to refrain from performing a particular act; the grant of a trustee of any necessary or desirable power; the resignation or appointment of a trustee; the determination of a trustee's compensation; the transfer of a trust's principal place of administration; liability of a trustee for an action relating to the trust and the termination or modification of a trust.
It is also possible to have the court approve a nonjudicial settlement agreement. Some reasons why court approval might be useful is to have the court indicate that the representation of the parties was adequate or that the terms and conditions could have been approved by the court and do not violate a material purpose.
Nonjudicial settlement agreements have become an amazingly useful tool, which we use with increasing frequency to solve problems that come up with the administration of trusts. If you have a matter that you think could be resolved with a nonjudicial settlement agreement, call the office and schedule an appointment with Alyssa or me. We would be happy to help you.