November, 2019 Newsletter
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Linda Kotis & Modification Mania: Avoid Trust Code Trip-Ups and Draft Documents to Facilitate Change
“Grantor trusts. Non-grantor trusts. Revocable trusts that became irrevocable following the settlor’s death. Crummey trusts. Dynasty trusts with living settlors. Trusts with deceased settlors. These are among the types of trusts involved in the dozens of trust modifications on which we have advised our clients over the past several years. As the statutory mechanisms for modifying trusts grow in number and variety, it is reasonable for the estate planner to expect clients to modify their irrevocable trusts at a future date. Anticipating change is better than being surprised by it. Therefore, learn how to avoid the pitfalls present in relying solely on the statutes and consider drafting new trusts so as to facilitate later changes.”
Linda Kotis provides members with commentary on modification of irrevocable trusts and some “Pro Tips” for (i) avoiding the pitfalls present under state trust codes and (ii) drafting new trusts to facilitate later changes.
Click this link to read her commentary.
Grantor trusts. Non-grantor trusts. Revocable trusts that became irrevocable following the settlor’s death. Crummey trusts. Dynasty trusts with living settlors. Trusts with deceased settlors. These are among the types of trusts involved in the dozens of trust modifications on which we have advised our clients over the past several years. While some of these include trusts written in the distant and recent past for our own clients, other projects came to us from families changing counsel. All but one of the modifications have been non-judicial. Reasons for amendments have included:
· Updating and standardizing administrative provisions across 22 different trusts for multiple generations of the same family;
· Adding general powers of appointment to Crummey trusts to create a more favorable tax result;
· Clarifying that a Trustee’s power to guarantee loans includes power to provide indemnification;
· Changing the situs and governing law of a District of Columbia trust to Delaware and making it a directed trust;
· Decanting trusts to remove a contingent general power of appointment because of the settlor’s concern over a beneficiary’s potential choice of appointees; and
· Moving trusts to another jurisdiction to take advantage of the new jurisdiction’s trust code provisions allowing a nonjudicial termination.
Mechanisms for the changes have included: (i) statutory modifications using 12 Del. C. § 3342(a) which allows a trust agreement to be modified during the settlor’s lifetime with the consent or non-objection of the settlor, Trustees, and beneficiaries; (ii) statutory mergers using 12 Del. C. § 3325(29) which allows a Trustee to merge an irrevocable trust following the settlor’s death into an existing trust or a new trust with the consent or non-objection of the Trustees and beneficiaries; (iii) relying upon a trust agreement provision allowing a Trustee to modify the agreement for tax reasons and consistent with the settlor’s intent, when beneficial interests are not being changed; and (iv) decanting based upon a state’s new decanting statute.
The statutory choices for modifying trusts are growing in number and variety, with jurisdictions adopting the Uniform Trust Code (UTC) and the Uniform Trust Decanting Act (UTDA) and adding Nonjudicial Settlement Agreement (NJSA) provisions to their trust codes. It is reasonable for the estate planner to anticipate that clients will wish to modify trusts benefitting a family member at a future date.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
LISI Estate Planning Newsletter #2760 (October 31, 2019) at http://www.leimbergservices.com Copyright 2019 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
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