Irrevocable Trust Nonjudicial Settlement Agreements: The Good, the Bad, and the Ugly

Some trusts are irrevocable as soon as they are created, which means that, in general, the trustmaker (the person who created and funded the trust) cannot terminate or modify it and take back the money or property that it holds. You may wonder why anyone would want an irrevocable trust, but irrevocable trusts can provide some very important benefits, particularly asset protection, tax minimization, and maintaining eligibility for government benefits. In contrast, trustmakers may amend or revoke a revocable living trust at any time prior to their death, but at their death the trust becomes irrevocable.

Although irrevocable trusts generally cannot be changed, many states’ laws allow interested parties to modify a trust in certain circumstances using a binding nonjudicial settlement agreement—assuming there is no language in the trust document prohibiting their use or providing another way for the trustee and beneficiaries to consent to modifications. In the absence of a statute permitting a nonjudicial settlement agreement, the interested parties under state law, which may include the grantor, the trustee, or the current or future beneficiaries or their representatives, would have to petition a court to modify the trust or interpret unclear provisions. In states where nonjudicial settlement agreements are permitted, their use can avoid the costs, delays, and lack of privacy associated with judicial proceedings.

When May a Nonjudicial Settlement Agreement Be Used?

A nonjudicial settlement agreement is only valid if it does not violate a material purpose of the trust or terminate the trust in an impermissible manner and any modification would have been approved by a court if the parties had petitioned the court. Although there are variations in each state’s statute governing nonjudicial settlements, there are […]

2023-03-21T08:32:07-07:00March 18th, 2023|Asset Protection Trusts, Irrevocable Trusts, Trusts|

Have You Chosen the Right Trustee?

Whether you are reviewing your existing trust or creating a new trust, you should understand the important role that a trustee plays not only in handling trust matters but also in providing for and protecting your loved ones.

What is a trust?

A trust is an agreement between an owner of accounts and property (trustmaker) and another person (trustee) who agrees to manage the accounts and property on behalf of a third party (beneficiary). In most situations, there is a written document, called a trust agreement, that lays out the specific instructions or rules that govern the trust relationship.

What is a trustee?

A trustee is a trusted decision maker who is tasked with handling all matters that relate to your trust. Depending on the type of trust, you could be the trustee in the beginning and need someone else to act as trustee only when you are unable to manage the trust, or you could select a trustee to act immediately.

What types of trustees are there?

When creating an estate plan, there are several types of trustees to consider. An initial trustee is the decision maker that immediately starts managing the trust’s accounts and property. You may choose to be the initial trustee if you create a revocable living trust. However, for some types of irrevocable trusts, you will need to select someone else to be the initial trustee.

The successor trustee is the next in line to manage the trust. This person may need to act because the initial trustee becomes incapacitated, dies, or steps down from their role.

You could choose to have one trustee handle the entire trust. You could […]

2023-03-21T08:33:22-07:00March 14th, 2023|Asset Protection Trusts, FAQ, Irrevocable Trusts, Trusts|
Go to Top