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Modifying Irrevocable Trusts Using Nonjudicial Settlement Agreements

Structuring NJSA Wrappers, Relocating Trust Situs, Resolving Disputes, Remedying Trust Construction Issues

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, SEPTEMBER 19, 2017

Presenting a live 90-minute webinar with interactive Q&A Lauren Evans DeJong, Of Counsel, Stahl Cowen Crowley Addis, Chicago Alissa B. Gorman, J.D., LL.M. (Taxation), Shareholder, McAndrews Law Offices, Berwyn, Pa. Miguel D. Pena, Esq., The Law Office of Denise D. Nordheimer, Wilmington, Del.

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Modifying Irrevocable Trusts Using Nonjudicial Settlement Agreements

Alissa B. Gorman McAndrews Law Offices, P.C. Berwyn, Pennsylvania agorman@mcandrewslaw.com

5

Amending an Irrevocable Trust

6

Irrevocable Trust

• Settlor establishes trust and transfers assets to a

trustee for the benefit of an individual

• Permits the settlor to reduce death taxes and

transfer wealth in a protective arrangement

• Settlor cannot amend or revoke the trust; gives

up all control over property

• Changing circumstances warrant modifications

to trust

7

Common Reasons to Modify

Improve Administrative Provisions Modernize Trust

• Appoint Trust Protector
• Clarify Trustee Succession
• Adjust Trustee Powers
• Change Situs/governing

law

• Clarify scrivener’s error
• Change Outdated

Language

• Merge trusts
• Add Tax Planning

Provisions

• Address

incapacity/special needs

• f beneficiary
• Grantor to non-grantor

8

How Do I Amend an Irrevocable Trust?

• Trust provisions
• Decanting
• Statutory authority
• Judicial and nonjudicial

9

Authority to Amend

• Trust Provisions
• Power to substitute assets
• Power to terminate if small corpus
• Trustee succession
• Trustee removal and resignation
• Convert to unitrust
• Merge trusts
• Amend for change in law
• Transfer situs

10

Authority to Amend

• Decanting
• Trustee “decants” or pours trust assets

into another trust

• Trustee has inherit authority through

general trustee powers

• Some states have decanting statutes

11

Authority to Amend

• Statutory: Uniform Trust Code
• Intended to streamline existing trust case law and

statutes into an updated body of laws governing trusts

• Provides a framework for all 50 states on trust law
• Passed in 32 states
• http://www.uniformlaws.org/LegislativeMap.aspx?t

itle=Trust%20Code

12

Uniform Trust Code

• Judicial & Nonjudicial modification
• Judicial: UTC 410 – 416
• Court proceeding by settlor, trustee, or beneficiary

to modify or terminate a trust

• Nonjudicial: UTC 111, 411
• Agreement between interested persons to modify
• r terminate a trust without petitioning the court to

approve new provisions

13

Judicial Approval of Amendment

If Settlor does not consent or is dead, interested person can petition court for modification:

• UTC 411(b)
• ALL beneficiaries consent AND
• Not inconsistent with material purpose
• UTC 411(d)
• SOME beneficiaries consent AND
• Court satisfied that if all beneficiaries consented Trust could have

been modified under this section AND

• Interests of non-consenting beneficiary adequately protected
• UTC 412 – Unanticipated circumstances

14

Judicial Approval of Amendment

• UTC 413 – Cy Pres (charitable trusts)
• UTC 414 – Trust too small to justify

administration

• UTC 415 – Correct mistakes/conform to Settlor’s

probable intention

• UTC 416 – Achieve Settlor’s tax objectives, divide

trusts, merge trusts

15

Nonjudicial Amendment

• Nonjudicial Settlement Agreement (NJSA)
• UTC 111
• Useful when amendment is straightforward

and all parties agree

• Cannot violate a material purpose of the trust
• Modification by Consent
• UTC 411
• Useful when settlor and beneficiaries agree
• Can violate a material purpose

16

Nonjudicial Settlement Agreement

NONJUDICIAL SETTLEMENT AGREEMENTS SECTION 111 (a) For purposes of this section, “interested persons” means persons whose consent would be required in order to achieve a binding settlement were the settlement to be approved by the court.

17

Nonjudicial Settlement Agreements – UTC 111

(b) Except as otherwise provided in subsection (c), interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust. (c) A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this Code or other applicable law.

18

Nonjudicial Settlement Agreements – UTC 111

(d) Matters that may be resolved by a nonjudicial settlement agreement include:

(1) the interpretation or construction of the terms of the trust; (2) the approval of a trustee’s report or accounting; (3) direction to a trustee to refrain from performing a particular act

• r the grant to a trustee of any necessary or desirable power;

(4) the resignation or appointment of a trustee and the determination of a trustee’s compensation; (5) transfer of a trust’s principal place of administration; (6) liability of a trustee for an action relating to the trust.

19

Nonjudicial Settlement Agreements – UTC 111

(e) Any interested person may request the court to approve a nonjudicial settlement agreement, to determine whether the representation as provided in Article 3 was adequate, and to determine whether the agreement contains terms and conditions the court could have properly approved. UTC 111 Comment: “resolution of disputes by nonjudicial means is encouraged”

20

NJSA – Interested Person

• Interested persons (IP): Person whose consent is

required if agreement were to be approved by the court

• IP not defined in UTC
• Consent of Settlor and Beneficiaries
• Consent of all beneficiaries
• Consent of some beneficiaries
• When charity involved, usually state Attorney General is

noticed

21

NJSA – Interested Person

• What about the Trustee?
• UTC Comment: …[T]his section does not attempt to

precisely define the “interested persons” whose consent is required to obtain a binding settlement as provided in subsection (a). However, the consent of the trustee would ordinarily be required to obtain a binding settlement with respect to matters involving a trustee’s administration, such as approval of a trustee’s report or resignation.

• UTC 111 in PA: Substitutes “interested persons” with

“Trustee and all beneficiaries”

22

NJSA – Material Purpose

• UTC 411: Spendthrift provision presumed NOT to be a

material purpose of the trust.

• UTC Comment: “In order to be material, the purpose remaining

to be performed must be of some significance…”

• UTC Comment: “A finding of such a purpose generally requires

some showing of a particular concern or objective on the part of the settlor, such as concern with regard to the beneficiary’s management skills, judgment, or level of maturity.”

• Spendthrift language considered boilerplate?
• PA: Spendthrift clause is presumed to constitute a material

purpose

23

Matters Resolved by NJSA

• Resignation/appointment of Trustee & Trustee

compensation

• Transfer of trust situs
• Interpret trust terms
• Grant to Trustee of any power
• Any other matter concerning trust administration
• Include special needs trust for beneficiary with

disabilities

• In PA, can modify or terminate a trust
• Only if trustee and all beneficiaries agree and does

not violate material purpose

24

Modification by Consent

• UTC 411(a)
• Modification by consent of settlor and all

beneficiaries

• Even if inconsistent with material purpose
• Broader authority than NJSA
• Court approval not necessary if settlor and all

beneficiaries agree

• Spendthrift clause is NOT presumed to be a material

purpose

• Agent for Settlor may consent if the Power of

Attorney expresses authorizes such power; Guardian may consent if approved by the court with jurisdiction

• ver guardianship

25

Judicial Approval of NJSA/Consent

• Why petition court for approval of amendment if

not required under statute?

• Protection from liability
• Required by corporate trustee
• Charity as beneficiary
• Clarify whether amendment violates material

purpose

26

PA Uniform Trust Act

§ 7710.1. Nonjudicial settlement agreements - UTC 111. (a) (Reserved). (b) General rule.--Except as otherwise provided in subsection (c), all beneficiaries and trustees of a trust may enter into a binding nonjudicial settlement agreement with respect to any matter involving the trust. The rules of Subchapter C (relating to representation) shall apply to a settlement agreement under this section. (c) Exception.--A nonjudicial settlement agreement is valid only to the extent it is not inconsistent with a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this chapter or

• ther applicable law.

27

PA Uniform Trust Act

• (d) Matters that may be resolved.--Matters that may be resolved by a

nonjudicial settlement agreement include the following:

• (1) The interpretation or construction of the provisions of a trust instrument.
• (2) The approval of a trustee's report or accounting or waiver of the preparation
• f a trustee's report or accounting.
• (3) Direction to a trustee to perform or refrain from performing a particular act.
• (4) The resignation or appointment of a trustee and the determination of a

trustee's compensation.

• (5) Transfer of a trust's situs.
• (6) Liability or release from liability of a trustee for an action relating to the

trust.

• (7) The grant to a trustee of any necessary or desirable power.
• (8) The exercise or nonexercise of any power by a trustee.
• (9) Questions relating to the property or an interest in property held as part of a

trust.

• (10) An action or proposed action by or against a trust or trustee.
• (11) The modification or termination of a trust.
• (12) An investment decision, policy, plan or program of a trustee.
• (13) Any other matter concerning the administration of a trust.

28

PA Uniform Trust Act

(e) Request of court.--Any beneficiary or trustee of a trust may request the court to approve a nonjudicial settlement agreement to determine whether the representation as provided in Subchapter C was adequate or whether the agreement contains terms and conditions the court could have properly approved.

29

Taylor case: Modification by Consent

• Edward Winslow Taylor, Intervivos Trust (Pennsylvania)
• Facts: Beneficiaries of trust established by settlor in

1928 brought action to modify Trust by consent under 7740.1(d) (UTC 411(d)) to add a portability clause despite a separate Code Section (7766/UTC 706) setting forth specific requirements to remove and replace a trustee. Trust agreement gave beneficiaries the right to appoint a new Trustee upon a vacancy in the trusteeship, which included removal as an example. However, the trust did not contain language addressing trustee removal. Trustee objected, reasoning that beneficiaries cannot achieve a “back door” removal through 7740.1, but must meet the strict requirements of 7766.

30

Taylor case: Modification by Consent

• Issue: Can beneficiaries of an irrevocable

trust without a portability provision consent to modify the Trust to allow the beneficiaries the ability to remove and replace the Trustee at any time where there is a specific code section that addresses removal?

• Is the lack of a portability provision a material

purpose?

• Is the beneficiaries’ intent relevant to the

modification?

31

Taylor case: Modification by Consent

• Philadelphia Orphans’ Court ruled in favor of trustee.
• Modifying the trust by consent of beneficiaries to include

a removal provision, which has its own UTA section, avoids the stricter standards of the removal section, and cannot be used to circumvent those stricter requirements.

• “It clearly was not the manifest intention of the

Pennsylvania legislature to allow beneficiaries to remove a trustee based upon their agreement and without satisfying the requirements of section 7766 where the settlor made no provision for trustee removal.

• Taylor, Phila. O.C. No. 3563 IV of 1939

32

Taylor Case

• Superior Court ruled in favor of the beneficiaries.
• Modification of trust to include portability provision by

consent of beneficiaries was proper under 7740.1(d) (UTC 411(d)) despite a separate code section (7766/UTC 706) that addresses Trustee removal

• Section 7740.1 is clear and unambiguous on its face.
• Statute does not exclude any modifications. Because the

requirements of PEF Code Section 7740.1(d) (UTC 411(d)) were met, the Court approved modification.

• Taylor, 2015 PA Super 199 (Pa. Super. Ct., 2015)

33

Taylor Case

• Supreme Court ruled in favor of the trustee.
• Issue taken up on appeal: “The issue presented by

petitioner and rephrased for clarity is whether the Superior Court erred in holding that trust beneficiaries may circumvent the requirements for removal of a trustee in 20 Pa. C.S.A. § 7766, by amending the Trust Under 20 Pa.C.S.A. §7740.1.”

• “We conclude that the UTA does not permit the removal

and replacement of a trustee without Orphans’ Court approval in accordance with section 7766.”

• Taylor Trust, Appeal of: Wells Fargo Bank, No. 15 EAP

2016

34

Taylor Case

• Each provision of the UTC must be read in conjunction

with other provisions.

• In PA, trustee removal only permitted through explicit

trust portability provision or UTA 7766/UTC 706.

• Does silence on trustee removal in the trust agreement

indicate that settlor did not intend for beneficiaries to have power to remove trustee?

• What if financial institution provided the trust agreement

to settlor and settlor did not engage independent counsel?

35

Modifying Irrevocable Trust Agreements Using Nonjudicial Settlement Agreements

(Other NJSA Statutory Provisions and Variances from UTC Model, Utilization of NJSA to Relocate Trust Situs)

Miguel D. Pena Nordheimer Law, LLC Wilmington, DE 19802 (302) 655-4500 miguel@nordheimerlaw.com 37

Variances

NJSA STATUTORY PROVISIONS AND VARIANCES FROM UTC MODEL OVERVIEW:

• All states (including the District of Columbia) have adopted some version of the UTC

with respect to NJSA’s, except for 18 (AK, AZ, CA, CO, CT, DE, GA, HI, ID, IN, IA, LA, NV, OK, RI, SD, TX, WA).

• Many states that have not adopted the UTC have adopted their own statutes providing for

NJSA’s.

• In many instances, NJSA statutes in the states that have adopted the UTC have provisions

that vary, to some extent from the UTC. There is also variance in the NJSA provisions among the states that have not adopted the UTC, but have adopted their own NJSA statutes.

• Examples of Variances
• Who may enter into a NJSA? “Interested persons”, “Qualified beneficiaries”.
• UTC §111(a) defines an interested person as “persons whose consent would be required in
• rder to achieve a binding settlement were the settlement to be approved by the court”.
• The required parties to a NJSA vary by jurisdiction and is not always clear on what

consents are required. However, unless expressly waived consents from all beneficiaries would be required.

38

Variances

• Arizona:
• Ariz. Rev. Stat. §14-1201(28) provides that an interested person includes:
• “Any trustee, heir, devisee, child, spouse, creditor, beneficiary, person holding a

power of appointment and other person who has a property right in or claim against a trust estate or the estate of a decedent, ward or protected person. Interested person also includes a person who has priority for appointment as personal representative and other fiduciaries representing interested persons. Interested person, as the term relates to particular persons, may vary from time to time and must be determined according to the particular purposes of, and matter involved in, any proceeding”.

39

Variances

• Delaware:
• 12 Del C., § 3338 provides that “interested persons’’ means persons whose consent would

be required in order to achieve a binding settlement were the settlement to be approved by the Court of Chancery. With respect to any nonjudicial settlement agreement regarding a trust, the term ‘‘interested persons” means all whose interest in the trust would be affected by the proposed nonjudicial settlement agreement, which may include that an interested person to a NJSA means all persons whose interest in the trust would be affected by the proposed nonjudicial settlement agreement, which may include:

• Trustees and other fiduciaries, unless they have otherwise signified their consent or

non-objection to the petition by acting as a petitioner or accepting a fiduciary position;

• Trust beneficiaries, who will generally be those with a present interest in the trust and

those whose interest in the trust would vest, without regard to the exercise or non- exercise of a power of appointment, if the present interest in the trust terminated on the date the petition is filed;

• The trustor of the trust, if living; and
• All other persons having an interest in the trust according to the express terms of the

trust instrument (such as, but not limited to, holders of powers and persons having

• ther rights, held in a nonfiduciary capacity, relating to trust property).
• Pennsylvania:
• 20 Pa. Cons. Stat. §7710.1(b) provides, in part that “…all beneficiaries and trustees of a

trust may enter into a binding nonjudicial settlement agreement with respect to any matter involving the trust”.

40

Variances

• Tennessee:
• Tenn. Code Ann. §35-15-111(a) – “…the trustee and the qualified beneficiaries may enter

into a binding nonjudicial settlement agreement with respect to any matter involving a trust.”

• Tenn. Code Ann. §35-15-103(24) – “Qualified beneficiary” means a beneficiary who,

assuming the nonexercise of all powers of appointment and the nonoccurrence of any event not reasonably expected to occur, on the date the beneficiary’s qualification is determined:

• Is a distributee or permissible distributee of trust income or principal;
• Would be a distributee or permissible distributee of trust income or principal if the

interests of the distributes . . . terminated on that date; or

• Would be a distributee or permissible distributee of trust income or principal if the

trust terminated on that date.

• Tenn. Code Ann §35-15-110 also provides that a charitable organization expressly

designated to receive distributions under the terms of a charitable trust has the rights

• f a qualified beneficiary if the charitable organization, on the date the charitable
• rganization’s qualification is being determined:
• Is a distributee or a permissible distributee of trust income or principal;
• Would be a distributee or a permissible distributee of trust income or principal if

the interests of other distributees or permissible distributees then receiving or eligible to receive distributions terminated on that date without causing the trust to terminate; or

• Would be a distribute or a permissible distribute of trust income or principal if the

trust were terminated on that date.

41

Matters that may be addressed through NJSA

Some states provide a non-exclusive list of matters that can be addressed by a NJSA:

• Delaware.
• 12 Del. C. § 3338 provides that “. . . interested persons may enter into a binding

nonjudicial settlement agreement with respect to any matter involving a trust . . . .”.

• 12 Del. C. § 3338(d) provides a non-exclusive list of matters that may be resolved by a

nonjudicial settlement agreement:

• The interpretation or construction of the terms of the trust;
• The approval of a trustee’s report or accounting;
• The direction to a trustee to refrain from performing a particular act or the grant to a

trustee of any necessary or desirable power;

• The resignation or appointment of a trustee and the determination of a trustee’s

compensation;

• The transfer of a trust’s principal place of administration; and
• The liability of a trustee for an action relating to the trust.
• Florida.
• Fla. Stat. §736.0111(3) provides that “A nonjudicial settlement may not be used to

produce a result not authorized by other provisions of this code, including, but not limited to, terminating or modifying a trust in an impermissible manner.”

42

Matters that may be addressed through NJSA

• Illinois.
• 760 Ill. Comp. Stat. §5/16.1(d)(4)(K) – “The following matters may be resolved by a

nonjudicial settlement agreement…. Modification of the terms of the trust pertaining to administration of the trust.”

• Kansas.
• Kan. Stat. Ann. §58a-111(d) states that matters that may be resolved by a nonjudicial

settlement agreement are limited to:

• The approval of a trustee’s report or accounting;
• The resignation or appointment of a trustee and the determination of a trustee’s

compensation;

• The transfer of a trust’s principal place of administration; and
• Liability of a trustee for an action relating to the trust.
• Massachusetts.
• Mass. Gen Laws. Ch. 203E. §111(d) provides that matters that may be resolved by a

NJSA include:

• The interpretation or construction of the terms of a trust;
• The approval of a trustee’s report or accounting;
• Direction to a trustee to refrain from performing a particular act or the grant to a trustee
• f any necessary or desirable power;
• The resignation or appointment of a trustee and the determination of a trustee’s

compensation;

• Transfer of a trust’s principal place of administration.

43

Matters that may be addressed through NJSA

• New Hampshire.
• N.H. Rev. Stat. §564-B:1-111(d)(7) provides that “Matters that may be resolved by a

nonjudicial settlement agreement include without limitation…. the termination or modification of a trust.”

• North Carolina/South Carolina.
• The Carolinas copy all of the above Massachusetts provisions except for resolving the

interpretation or construction of the terms of the trust. N.C.G.S. §36C-1-111(b) and S.C. §62-7-111(b):

• Interested persons may enter into a binding nonjudicial settlement agreement with

respect to any of the following matters involving a trust:

• The approval of a trustee’s report or accounting;
• Direction to a trustee to perform or refrain from performing a particular

administrative act or the grant to a trustee of any necessary or desirable administrative power, including a power granted under G.S. §36C-8-816;

• The resignation or appointment of a trustee and the determination of a trustee’s

compensation;

• Transfer of a trust’s principal place of administration; and
• Liability of a trustee for any action taken under subdivisions (1) through (4) of

this subsection.

44

Matters that may be addressed through NJSA

• Ohio.
• Ohio Rev. Code §5801.10(C)(4)-(6)provides: “Matters that may be resolved by a private

settlement agreement [i.e., NJSA] include, but are not limited to, all of the following:

• Modifying the terms of the trust, if the modification is not inconsistent with any

material purpose of the trust;

• Modifying the terms of the trust in the manner required to qualify the gift under the

terms of the trust for the charitable estate or gift tax deduction permitted by federal law, including the addition of mandatory governing instrument requirements for a charitable remainder trust as required by the Internal Revenue Code and regulations promulgated under it in any case in which the parties interested in the trust have submitted written agreements to the proposed changes or written disclaimer of interest; and

• Modifying the terms of the trust in the manner required to qualify any gift under the

terms of the trust for the estate tax marital deduction available to noncitizen spouses, including the addition of mandatory governing instrument requirements for a qualified domestic trust under section 2056A of the Internal Revenue Code and regulations promulgated under it in any case in which the parties interested in the trust have submitted written agreements to the proposed changes or written disclaimer of interest.

45

Modifying Irrevocable Trusts Using Nonjudicial Settlement Agreements

Lauren Evans DeJong Stahl Cowen Crowley Addis ldejong@stahlcowen.com

47

Uniform Trust Code §111(e)

Any interested person may request that court to approve a nonjudicial agreement, to determine whether the representation as provided in [Article] 3 was adequate, and to determine whether the agreement contains terms and conditions the court could have properly approved.

48

Court Approval

• Interested persons may request the court approve the settlement

agreement to determine if representation was adequate and to determine whether the agreement contains terms and conditions the court could have approved

• This provision highlights the necessity of having consent from all

interested persons because essentially an interested person can turn a nonjudicial settlement into a judicial settlement

49

Interested Person

50

Uniform Trust Code §111(a)

“Interested Persons” means persons whose consent would be required in order to achieve a binding settlement were the settlement to be approved by the court

51

State Law Considerations

52

Required Consents

• The settlor is not an interested person and settlor consent is

not required

• A trustee’s consent is ordinarily required to obtain a binding

settlement with respect to matters involving a trustee’s administration, such as approval of a trustee’s report or resignation

• Beneficiary’s consent likely always required

53

Representation

54

Actual Representation vs. Virtual Representation

• Actual representation - based upon an individual’s relationship

to a represented party (Sections 302 and 303 of the Uniform Trust Code)

• Virtual representation - based upon an individual holding

substantially identical interests to the represented party (Section 304 of the Uniform Trust Code)

55

Representation by Holder of General Testamentary Power

• f Appointment

Section 302 of the Uniform Trust Code provides for the representation of persons whose interests, as permissible appointees, takers in default, or otherwise, are subject to the power, by a holder of a general testamentary power of appointment to the extent there is no conflict of interest between the holder of a general testamentary power of appointment and the person represented with respect to the particular question or dispute.

56

Representation by Fiduciaries and Parents

Section 303 of the Uniform Trust Code provides for representation by fiduciaries and parents to the extent that there is no conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute

• A conservator or guardian may represent and bind the estate that

the conservator or guardian controls

• An agent having authority to act with respect to the particular

question or dispute may represent and bind the principal

• A trustee may represent and bind the beneficiaries of a trust
• A personal representative of a decedent’s estate may represent and

bind persons interested in the estate

• A parent may represent and bind the parent’s minor or unborn child

if a conservator or guardian for the child has not been appointed

57

Representation by Person Having Substantially Identical Interest

Section 304 of the Uniform Trust Code provides for a minor, incapacitated or unborn individual or person whose identity or location is unknown and not reasonably ascertainable, to be represented and bound by a person having the substantially identical interest with respect to the particular question or dispute, unless the minor, incapacitated or unborn individual or person whose identity or location is unknown and not reasonably ascertainable is otherwise represented, and only to the extent there is no conflict of interest between the representative and the person represented

58

Appointment of Representative

Section 305 of the Uniform Trust Code provides for the appointment of a representative

• If the court determines that an interest is not represented or that

the otherwise available representation might be inadequate, the court may appoint a representative to receive notice, give consent, and otherwise represent bind and act on behalf of a minor, incapacitated or unborn individual, or a person whose identity or location is unknown. A representative may be appointed to represent several persons or interests

• A representative may act on behalf of the individual represented

with respect to any matter arising under the uniform trust code, whether or not a judicial proceeding concerning the trust is pending

• In making decisions, a representative may consider general benefit

accruing to the living members of the individual’s family

59

Limitations on Representation

• Representative must not have a conflict of interest with respect to a

particular question at issue in the modification

• A Settlor can never represent a beneficiary in a nonjudicial consent

modification

• A parent can represent a minor or unborn child unless a guardian

has been appointed by a court

• Some states provide priority between parents who both want to

represent a minor child – generally the parent who is a beneficiary

• f the trust or whose ancestors created the trust has priority
• Certain fiduciaries can be actual representatives (i.e. conservator,

guardian, agent under power of attorney, trustee with respect to trust beneficiaries, and personal representative with respect to persons interested in the decedent’s estates)

• Holders of inter vivos or testamentary general powers of

appointment can bind potential appointees

60

Terms and Conditions Which Could be Approved by a Court

• Uniform Trust Code §111(c) provides that a nonjudicial

settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by a court

• Uniform Trust Code §111(e) limits the court’s review of a

nonjudicial settlement agreement to determinations as to the adequacy of representation and determinations as to whether the agreement contains terms and conditions to court could have properly approved

61

Nonjudicial Settlement Agreement Wrapper

• Can be used to create directed trusts by using a nonjudicial settlement

agreement wrapper to carve out a certain role while releasing the current trustee from liability for that role

• A nonjudicial settlement agreement wrapper may be used to
• Appoint an investment trustee, distribution trustee or other

special purpose trustee with certain exclusive powers

• Create an administrative nexus to a particular state
• Hold a concentrated position in a single asset
• Hold a portion of a limited liability company
• Open and fund a discretionary management account with an

investment manager

• Overcome traditional common law rules against self-dealing
• Restrict trustee’s power to provide information to the trust’s

beneficiaries

62

Benefits

• Minimize/eliminate tax concerns about otherwise modifying a

trust

• Minimize cost
• Maximize predictability

63

Liability Exposure

Important to evaluate the trustee’s potential liability exposure

• In Uniform Trust Code jurisdictions, the trust instrument cannot

exculpate the trustee for bad faith or reckless indifference

• Delaware permits exculpation of a trustee except for willful

misconduct

• Concern: Absent the willful misconduct standard, a trustee may still

have a duty to monitor the NJSA covered activity to avoid liability

64

Consideration

• A

nonjudicial settlement agreement does not require consideration to be effective

• Point of concern – Whether a release of the trustee for acts

covered by the NJSA wrapper is effective without consideration

• Delaware has specifically addressed this issue and provides that

a release is enforceable with or without consideration

65

Thank you

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