Our Perspectives
Nov 29, 2023
Brendan Mitchell

Flexibility: An Advantage Carved in Stone in the Granite State

Under the New Hampshire Trust Code, flexibility is provided for the administration of trusts

“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.

DIY – Trustee Modification

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 – NJSAs

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.

At the End of the Day – Decanting

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.

This presentation has been prepared by Market Street Trust Company. The views expressed herein represent opinions of Market Street and are presented for informational purposes only. They are not intended to be recommendations or investment advice and do not take into account the individual financial circumstances or objectives of the investor who receives them.

Certain statements included in this presentation constitute forward looking statements. Forward looking statements are not facts but reflect current thinking regarding future events or results. These forward looking statements are subject to risks that may result in actual results being materially different from current expectations.

Past performance (before and after taxes) does not guarantee future performance. There is no assurance that Market Street Trust Company investments will achieve their objectives, or that they will or are likely to achieve results comparable to results shown herein, or will make any profit, or will be able to avoid incurring losses. Exposure to foreign currencies may cause additional fluctuation in the value of any investment. Each investor must assess the suitability of an investment, the investor’s tolerance for risk and the impact on the investor’s diversification strategy. This presentation does not constitute an invitation to buy or an offer to sell securities, or any other products or services.

This is intended as general information only. Investors maybe required to meet certain criteria under the securities laws in order to qualify for certain investments. Any discussion of U.S. tax matters is not intended and cannot be used or relied upon for the purpose of avoiding U.S. tax-related penalties. Please visit our website for additional information concerning Market Street’s investments and investment updates. As always, please feel free to contact us if you would like to learn more about our investment program.

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