Nonjudicial Settlement Agreements: A Tool to Address Trust Administration Disputes

  • Estate Planning
September 30, 2020

Creating a Trust can be an effective method of distributing your property upon your death while also conveniently avoiding probate. However, sometimes the Trust does not work as was originally intended, there are factual or clerical errors in the Trust agreement, or the circumstances surrounding the Trust or its intended distribution have changed in unforeseen ways. Frequently, such confounding circumstances can result in expensive and drawn-out court proceedings/litigation. Rather than engaging in such costly litigation, a nonjudicial settlement agreement may be an optimal solution. A nonjudicial settlement agreement is a contract between the beneficiaries of a Trust that can modify the terms of the Trust and provide an effective and cost-efficient manner to resolve disputes regarding the terms of the Trust while avoiding the need for litigation. A nonjudicial settlement agreement can also provide flexibility by circumventing the unduly burdensome need to transfer estate assets to the Trust then transfer those same assets to beneficiaries from the Trust in cases in which there is a pour-over will which requires all of the estate assets to be transferred to the Trust upon the decedent’s passing.

Pursuant to C.R.S § 15-5-111, any person may enter into a binding nonjudicial-settlement agreement. Moreover, a nonjudicial settlement agreement does not need to be supported by consideration. Instead, for a nonjudicial settlement agreement to be valid, all persons whose interests in the Trust would be affected by the provisions of the agreement must be parties to the agreement. Thus, a nonjudicial settlement agreement cannot be between select beneficiaries of the Trust; all beneficiaries and interested parties must be in agreement with the terms of a nonjudicial settlement agreement for the agreement to be valid.

A nonjudicial settlement agreement provides versatility in terms of the matters the agreement addresses. Some examples of matters which may be addressed in a nonjudicial settlement agreement include but are certainly not limited to interpretation of the terms of the Trust; direction to a Trustee to refrain from performing an act or granting a Trustee a power; determination of Trustee’s compensation; distribution of the Trust corpus; transferring a Trust’s principal place of administration; and liability of a Trustee for an action related to the Trust. However, keep in mind that one crucial requirement for a non-judicial settlement agreement is that is cannot violate a material purpose of the Trust or any laws. So long as the above-mentioned requirements of a nonjudicial settlement agreement are met, though not required any interested party can go further and request the court approve the nonjudicial settlement agreement, thereby also providing the agreement the court’s stamp of approval. Again, such is not legally necessary but may provide the beneficiaries to the Trust additional peace of mind that any potential conflict is resolved for good.

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A nonjudicial settlement agreement thus provides an effective and versatile means to modify an irrevocable or revocable Trust and to settle disputes regarding administration or interpretation of a Trust. Contact us today for help administering the Trust of a loved one or to discuss in greater detail your options for resolving conflict with the administration of Trust without necessarily requiring the time and costs of expensive litigation.

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