The past couple of years have brought many changes to trust law in Massachusetts, which provide new and interesting techniques enabling Trustees to deal with the challenges that often arise over the course of administering irrevocable trusts.
Last year, Massachusetts adopted its own version of the Uniform Trust Code, known as the Massachusetts Uniform Trust Code or MUTC. Under the MUTC, through what is known as a “non-judicial settlement agreement”, it is now possible to modify or terminate an irrevocable trust without court approval, provided that all interested persons are in agreement and no material purposes of the trust are compromised. In addition, earlier this summer, the Supreme Judicial Court ruled that a Trustee of an irrevocable trust can engage in a process known as “decanting”, whereby the Trustee can distribute the assets from an existing irrevocable trust into a new irrevocable trust.
As with non-judicial settlement agreements, decanting allows a Trustee to fix issues that arise due to outdated administrative provisions in existing irrevocable trusts or to deal with unforeseen circumstances that can occur with particular beneficiaries. While both of these techniques introduce new flexibility into the administration of irrevocable trusts, they should be used carefully. The IRS has not issued any guidance on the tax ramifications of either technique. And, Trustees would be wise to carefully consider potential liability.