September 26, 2018
Under Wisconsin law, nonjudicial settlement agreements can be used to modify trusts that otherwise would be considered irrevocable without court action. With a nonjudicial settlement agreement, an irrevocable trust which appears incapable of being updated, can sometimes be updated without having to go to court. Wisconsin Statute 701.0111 provides part of the relevant law covering these nonjudicial settlement agreements.
Wisconsin Revocable Trusts and Nonjudicial Settlement Agreements
A revocable trust can typically be updated or changed by the person who created the trust while alive and competent. The person who establishes a revocable trust is often referred to as the settlor or the grantor. Many revocable trusts can also be updated by the surviving spouse depending upon the terms of the trust. As such, our estate planning lawyers will not cover revocable trusts in this article.
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When a Trust is Irrevocable or When Does a Trust Become Irrevocable?
Some trusts are set up as irrevocable trusts from the start by the settlor and cannot be changed by the settlor. For example, Medicaid asset protection trusts are set up as irrevocable trusts.
In Wisconsin, most revocable trusts become irrevocable upon the passing of the settlor, especially if there is no surviving spouse. Therefore, often a trust established as a revocable trust will become irrevocable upon the happening of a certain event such as death of the settlor.
For example, let’s say that mom and dad set up a revocable trust to avoid probate. Once mom and dad have passed away that trust may no longer be a revocable trust. It may become an irrevocable trust which cannot be updated without a court order or without the use of a nonjudicial settlement agreement.
Who Can Approve Nonjudicial Settlement Agreements?
This is actually a complicated question, but for purposes of this article, we will assume that all interested persons and beneficiaries would sign and approve of the nonjudicial settlement agreement. Therefore, normally at least all of the beneficiaries of the trust and the trustee would need to approve the changes contemplated by the nonjudicial settlement agreement.
Nonjudicial Settlement Agreements to Avoid Court Action
A nonjudicial settlement agreement can avoid the expense of going to court. It can avoid a trust matter becoming a public court matter. However, a nonjudicial settlement agreement cannot be used to accomplish something that violates the general purpose of the trust or that a court could not approve. If the terms and conditions of the nonjudicial settlement agreement could not be approved by a court, it is not allowed under Wis. Stats. 701.0111(4).
Key Reasons to Use Nonjudicial Settlement Agreements
There several reasons to use a nonjudicial settlement agreement to update a Wisconsin trust. The following are some of the more salient reasons:
- Resignation or appointment of a trustee: This can occur when there is no acting trustee or no other way to easily have a trustee appointed. For example, when the last named trustee no longer wants to act, all of the persons interested in the trust could agree to appoint a successor trustee. In the past, court action would have likely been required to name a new trustee.
- Interpretation or clarification of a confusing or ambiguous trust provision: For example, a trust is unclear if grandchildren were to be included for a deceased child’s share, or there is contradictory language, but everyone agrees that grandchildren were to be included.
- Approval or waiving of a trustee accounting
- Clarification of distribution provisions: For example, a trust may need greater clarity about how assets are to be distribute to a beneficiary. Or it may need to be updated to comply with the settlor’s intention when the settlor inadequately updated the trust.
- Changing the “situs” or location of the trust for governing laws: For example, if everyone involved in the trust has moved to Wisconsin, but the trust was created in another state and was to be governed by the laws of another state. It might be beneficial to update the trust to have Wisconsin trust laws apply.
- Inclusion of certain powers or terms to save taxes: See our recent article about tax situations where an irrevocable credit shelter trust may need updating.
- Documenting actions and agreements to remedy disputes: For example, where there is a trust dispute and all of the parties agree how to settle the dispute, a nonjudicial settlement agreement can be used to update the trust, detailing how to fulfill the settlement agreement.
- Alteration of a trust to achieve the results intended by the settlor: A settlor may have established a trust, and then have written directions or discussed changes with the trustee without actually legally making these changes. A nonjudicial settlement agreement can be used to update the trust to comply with the wishes of the settlor.
We Can Guide You Through Nonjudicial Settlement Agreements
At Wokwicz Law Offices, we have successfully updated many trusts through the use of Wisconsin nonjudicial settlement agreements. Our work helped clients avoid the cost and hassle of public court action. If you are dealing with an irrevocable trust that needs to be updated by agreement of the parties, please contact us or call 262-658-2181 to discuss how we help.