WHAT IS A NONJUDICIAL SETTLEMENT AGREEMENT?

A powerful tool for amending or repairing irrevocable trusts is the binding nonjudicial settlement agreement (NJSA). Most irrevocable trusts do not provide for the amending of trust terms except in instances where modification is necessary to comply with the tax code or other specified laws. However, there are two methods for repairing irrevocable trusts which most states recognize; one is decanting and the other is the binding NJSA. (Decanting is discussed specifically in a previous issue of this newsletter)

An NJSA is exactly as it describes: an agreement among “interested persons” to make alterations to an irrevocable trust. Interested persons are generally defined as any person whose consent would be required in order to achieve a binding settlement, were the settlement to be approved by the court.

Depending on state law provisions, the trust terms that may be modified by an NJSA are limited only by the restriction that the modification may not violate any material purpose of the trust, and would be approved by a court if reviewed.

While versatile and powerful tools for modifying irrevocable trusts, NJSAs also contain risks. Estate planning counsel should have a thorough understanding of critical drafting practices to avoid serious and costly consequences.

WFB LEGAL CONSULTING, INC.–A BEST ASSET PROTECTION Services Group

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