Presenting a live 90-minute webinar with interactive Q&A Modifying Irrevocable Trusts Using Nonjudicial Settlement Agreements Structuring NJSA Wrappers, Relocating Trust Situs, Resolving Disputes, Remedying Trust Construction Issues TUESDAY, SEPTEMBER 19, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: 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. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
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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 Modernize Trust Provisions • Appoint Trust Protector • Clarify scrivener’s error • Clarify Trustee Succession • Change Outdated • Adjust Trustee Powers Language • Change Situs/governing • Merge trusts • Add Tax Planning law Provisions • Address incapacity/special needs of beneficiary 8 • Grantor to non-grantor
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 or 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 or 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
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