This month's article is the final installment in our series about modifying irrevocable trusts. As we previously mentioned, changes in New Hampshire law have simplified the process of making changes to irrevocable trusts in certain circumstances. Our first article discussed Nonjudicial Settlement Agreements and last month we discussed decanting. This article will focus on trustee modification.
Trustee modification is a new concept under New Hampshire law. The statutory authority went into effect in July of 2014, as part of significant revisions to the New Hampshire Trust Code.
Just like decanting, trustee modification is carried out unilaterally by the trustee. A trustee may unilaterally modify a trust to further a settlor's intent or material purpose of the trust, preserve favorable tax treatment, enhance efficient administration, or minimize the cost of administration.
Just as with decanting, the trustee is subject to restrictions, many of which are the same as when decanting. For example, a trustee may not add a new beneficiary by modifying a trust and the ability of a trustee to modify a beneficiary's interest is also limited. The trustee cannot reduce or eliminate a vested interest. If the modification changes a nonvested interest, the change must be consistent with the settlor's intent.
In some respects, the trustee modification rules are even more restrictive than decanting. Unlike with decanting, in order for a trustee to modify a trust, the trustee must be an 'œindependent party.' This means the trustee may not be the person who created the trust, a beneficiary of the trust, someone who is 'œrelated or subordinate' to the person who created the trust or a beneficiary of the trust, or someone who is removable or replaceable by the person who created the trust or a beneficiary.
Many of the provisions that apply to decanting also apply to trustee modifications including that the trustee is not required to seek court approval, or the consent of the settlor or the beneficiaries before modifying the trust.
If the trustee is independent and the changes desired meet the requirements outlined in the statute, a trustee modification can be preferable to decanting a trust, especially for more minor changes. When a trust is decanted all the assets in the old trust must be transferred to the new trust. With trustee modification there is no need to retitle any assets and thus the process is even simpler.
Just as with decanting, a trustee's ability to modify a trust can be very helpful, but, careful consideration must be given to the fact that the trustee has a fiduciary duty to all beneficiaries of a trust and the trustee must act accordingly.
If you have an irrevocable trust in place and some provisions of the trust are no longer working efficiently or you desire to make some changes, we would be happy to discuss with you if one of the methods for modifying an irrevocable trust is right for you.