Bar News - July 16, 2014
Trust Code Revisions Enhance New Hampshire’s Position
By: William V.A. Zorn and Gayle Braley
As of July 1, New Hampshire joined the very short list of states where trusts can be modified in four different ways.
The New Hampshire Legislature recently passed SB 289, which will further New Hampshire’s goal of being the premier and most innovative state for trust administration.
SB 289 is a broad-ranging bill that applies to the administration of trusts and wills, but we want to highlight a few of the most significant changes here, including changes to trust modification rules, fiduciary attorney-client privilege, non-judicial dispute resolutions, and directed trusts. Trust and estate practitioners should study the entire bill, which became law as of July 1.
With this new law, New Hampshire will become one of the very few states that allow modification of trusts in four ways: (1) court petition, (2) non-judicial settlement agreement, (3) decanting, and (4) trustee modification. Prior to the adoption of the Uniform Trust Code, court petition was the sole way to modify a trust. In 2004, non-judicial settlement agreements allowed consenting beneficiaries to make agreements to modify trusts, provided the modifications could be approved by the court and would not violate a material purpose of the trust.
In 2008, pursuant to RSA 564-B:4-418, trustees gained the authority to modify and modernize trusts by “decanting” the assets of one trust into another, new trust. Decanting must not violate a material purpose of the trust, and the trustee must respect its fiduciary duties to all beneficiaries. The decanting authority is completely rewritten and clarified in SB 289. Effective trustees now have the authority to modify trusts without transferring assets into a new trust. This authority is more restrictive than the authority to decant trusts, but provides an important avenue in which the modifications are less significant, and the trust assets are difficult to transfer (i.e., real property).
SB 289 also enables executors and trustees (and other trust advisors and protectors) and their attorneys to exercise attorney-client privilege for advice given with respect to their roles as fiduciaries, to the same extent as the communication would be protected if it were between a client and his or her attorney. See RSA 556:31 and 564-B:2-205.
The availability of attorney-client privilege in this context has been unsettled, with no specific law in New Hampshire and a split of authority nationally. The argument for the difference from the usual attorney-client privilege situation is that fiduciaries owe duties to beneficiaries, and this privilege belongs to both the beneficiaries and the fiduciary. Those who support privilege have argued, in part, that the best means of ensuring wise decision-making by fiduciaries is to encourage them to obtain legal counsel, without concern that the advice given to them will be disclosed. A fiduciary’s understanding that attorney-client communications will be protected is an important clarification.
Also under SB 289, a trust may now require beneficiaries to resolve disputes through non-judicial means (i.e. mediation, arbitration). See RSA 564-B:111A. In addition, beneficiaries (and other interested persons) may commence judicial proceedings to determine the reasonableness of the non-judicial procedures, without triggering a violation of a No Contest provision.
Finally, RSA 564-B:7-711 has been amended to clarify the concept of directed trusts. A directed trust is one in which the trustee is specifically instructed under the trust to follow the direction of one or more trust advisors or trust protectors, in which case the trustee is an “excluded” fiduciary. The new provisions clarify the applicability of the directed trust provisions and issues of liability between the fiduciaries and beneficiaries.
With these changes, as well as the other provisions that update the laws relating to probate and trust administration, New Hampshire continues to be one of the most attractive jurisdictions for trust administration.
William Zorn and Gayle Braley are attorneys at the McLane firm.