“Granite” does not immediately conjure images of flexibility, but under the New Hampshire Trust Code, flexibility is exactly what the Granite State provides to trust administration. This flexibility allows trustees and interested parties to modify trusts to correct operational and administrative flaws, whether caused by the passage of time, drafting oversights or other reasons, and to make improvements generally. In many instances, New Hampshire provides for such modifications without the need for court intervention and the time and expense such intervention often entails. The primary extra-judicial methods are Trustee Modification, Non-Judicial Settlement Agreements (“NJSAs”) and Decanting.
New Hampshire definitely has a “do-it-yourself” mentality when it comes to needed fixes. But then, who doesn’t like to save time and expense by doing something yourself if possible? The New Hampshire Trust Code (RSA 564-B:4-419) extends this same self-sufficiency to trustees and allows a trustee to modify a trust on the trustee’s own initiative – even where the trust provides no such express authority.
Reasons for exercising this power include, but are not limited to, advancing the settlor’s intent or a material trust purpose, preserving favorable tax treatment, enhancing administrative efficiency and minimizing administrative costs. In other words, adjustments that make the trust do what it’s supposed to do a little better under the circumstances then present.
Lest you worry that a do-it-yourself trustee will go too far, however, the statute circumscribes what a trustee can and cannot do. These delineated limitations ensure that the settlor’s intent and, by extension, the material purpose of a trust remain paramount (and unchanged). Still, trustee modification is a valuable tool in a trustee’s kit and allows a trustee to make advantageous adjustments to the benefit of the trust and those who have an interest in it.
Group projects are also popular in New Hampshire. Unlike Trustee Modifications, an NJSA requires the participation of all “interested persons” (RSA 564-B:1-111). This group will include at a minimum the trustee, anyone who can enforce the trust and any other person whose consent would be required to achieve a binding court settlement (if the agreement were not “Non-Judicial”). Basically, this method allows all who have a present stake in a trust to agree on a course of action for the administration and interpretation of a trust so long as the agreement does not violate a material purpose of the trust.
An NJSA is not otherwise limited and can cover, among other things, trust construction and interpretation, direction to a trustee to perform or refrain from performing a particular act, or the termination or modification of a trust. In a recent statutory amendment (and one of the first of its kind in the nation), a New Hampshire trustee must now consider an NJSA directing the trustee to engage in specific investing strategies that align with the environmental, social and governance (“ESG”) objectives of interested persons. An NJSA used in this way can promote ESG investing within the context of New Hampshire’s prudent investor rule while alleviating trustee concerns solely about investment performance. All in all, as long as the group of interested persons is in accord, NJSAs can provide incredible flexibility to improve a trust’s administration.
As with a bottle of wine, particularly those of an older vintage, sometimes the best course of action is to decant. Just as pouring wine from its original bottle into a new container can benefit the wine (and those who enjoy it), so too can pouring the assets from an existing trust into a new, appointee trust.
A trustee’s authority to decant (RSA 564-B:4-418), while not unfettered, is expansive and does not require the assent of the settlor or beneficiaries. Provided it is consistent with the settlor’s intent and a trust’s material purposes, does not reduce or eliminate a vested right, or jeopardize beneficial tax treatment or eligibility, among a few other limitations, a trustee can use decanting for a number of objectives. By way of example, a trustee may change a trust’s situs or governing law, provide a power of appointment to a beneficiary, extend the term of a trust, modify a group of beneficiaries, allow for the distribution of principal and income and impose or remove a distribution standard. As time passes and circumstances change, such authority can breathe new life into a trust and better effect its settlor’s intent and its operation.
If you are interested in learning more about non-judicial trust modification, please let us know. We would be happy to discuss it in greater detail.
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