The Newfound Flexibility of Virginia Trusts
Trusts, which used to be considered a necessary evil or tolerated burden, have found new life as a flexible and malleable entity under the Uniform Trust Code, adopted by Virginia in 2006. Once considered absolutely irrevocable and inflexible, trusts can now be modified and molded into an opportunity and true benefit for their beneficiaries.
With the inception of the UTC came Virginia Code section 64.2-709, which allows a trust’s interested persons to enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust, as long as the modification does not violate a material purpose of the trust and includes provisions that could be approved by a court. The statute enumerates certain matters that may be resolved by a nonjudicial settlement agreement:
- Interpretation or construction of the terms of the trust
- Approval of a trustee’s report or accounting
- Direction to a trustee to refrain from performing a particular act
- The grant to a trustee of a necessary or desirable power
- The resignation or appointment of a trustee
- Determination of a trustee’s compensation
- Transfer of a trust’s principal place of administration
- Liability of a trustee for an action relating to the trust
While the statute lists these particular matters, the Code also allows nonjudicial settlement agreements to resolve any matter that could be resolved by a court. This much broader category includes termination of a trust and modification of a trust’s terms so long as the modification or termination does not violate a material purpose of the trust. Modification and termination of a trust by nonjudicial settlement agreement is appropriate when because of circumstances not anticipated by the grantor, modification or termination will further the purposes of the trust. Modification of the administrative terms of a trust is appropriate when the continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.
Although non-judicial settlement agreements seem like an excellent solution to many of a trust’s problems, they are not effective unless signed by all “interested persons,” or persons whose consent would be required to achieve a binding settlement of the matter in court. This definition varies depending on the Code section under which the nonjudicial settlement agreement operates, but in most circumstances, it includes all of the “qualified beneficiaries” of the Trust. The qualified beneficiaries are all of the then living: 1) current permissible beneficiaries of the trust; 2) contingent beneficiaries of the trust were the current permissible beneficiaries’ interests to lapse; and 3) contingent beneficiaries of the trust were the trust to terminate.
- Examples of matters that we have resolved at Kaufman & Canoles using nonjudicial settlement agreements in the last year include:
- Appointing a Co-Trustee of a Trust
- Appointing a Successor Trustee not named in the Trust Agreement
- Terminating a Family Trust after the death of the first spouse to die and distributing the assets to the grantor’s children outright
- Terminating a Trust that allowed investment in only one low-yield asset
- Modifying a Trust that named a now non-existent charitable beneficiary
- Changing a Trust’s situs and principal place of administration
- Modifying a Trust to allow for the appointment of a Trust Advisor
The use of a nonjudicial settlement agreement is not always desirable and sometimes is not feasible, such as in the case of a testamentary trust that is subject to oversight by a Commissioner of Accounts. In that case, a petition to the court for termination or modification of the Trust is oftentimes not complicated and is an efficient way to effect the desired change in the Trust. Having the Trustee file the petition with the notice and written consent of all qualified beneficiaries often results in an easy and quick court proceeding. In the past year, we have terminated a testamentary trust by petitioning the court with the informed consent of all of the qualified beneficiaries of the Trust.
Members of our Private Client Services Group and Fiduciary Litigation Team are available to consult with Trustees, Trust Beneficiaries, and their representatives about the possibility of modifying or terminating Trusts. With the expansive knowledge of our experienced estate planning attorneys and the depth of skill of our litigation attorneys, we are perfectly poised to craft a solution to a stale or unworkable trust that may not have been possible in the past.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.