modifying irrevocable trusts using nonjudicial settlement...

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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

[email protected] 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• Clarify scrivener’s error • Change Outdated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 of 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?title=Trust%20Code

12

http://www.uniformlaws.org/LegislativeMap.aspx?title=Trust Code




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.

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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


(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


(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 over 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 other applicable law.

27


• (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

of 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


(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


• 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


• 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

[email protected] 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 order 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

other 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 of a qualified beneficiary if the charitable organization, on the date the charitable organization’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


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 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;


• Direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power;


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

43


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:


• 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;


• 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


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

[email protected]

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

of 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 of 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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