USA Law and Practice Contributed by: Christopher Boyett, David Scott Sloan, Max Angel and Eric Bracy, Holland & Knight LLP
3.4 Exercising Control Over Irrevocable Planning Vehicles The US has taken meaningful steps to support flex - ibility in the structuring of irrevocable trusts and similar entities, allowing for future modifications and contin - ued involvement by the settlor. “Decanting” One such method is the use of “decanting”, which allows a trustee to transfer assets from an existing irrevocable trust into a new trust with updated terms. This can be used to adjust provisions for beneficiaries, extend the trust’s duration, or respond to changes in tax law, provided certain statutory requirements are met. Decanting does not require court approval in many cases, making it a practical tool for modernis - ing trusts. Non-Judicial Settlement Agreements (NJSAs) Another tool is non-judicial settlement agreements (NJSAs), which enable interested parties to agree on certain modifications to a trust without going to court. These agreements can be used to clarify or interpret trust terms, approve accounting, or resolve disputes, as long as the changes are within the bounds of what a court could otherwise approve. Non-Judicial Modification of Irrevocable Trusts Some jurisdictions also permit non-judicial modifica - tion of irrevocable trusts under certain circumstances, even beyond what is allowed through NJSAs. Through non-judicial modification, an irrevocable trust may be modified without court approval if the settlor and all qualified beneficiaries agree to the change. This allows for more substantive modifications, such as altering distribution provisions, changing administrative terms, or even terminating the trust, provided the modifica - tion is not inconsistent with a material purpose of the trust. This flexibility enables settlors and beneficiar - ies to adapt trust terms to evolving family, financial or legal circumstances while avoiding the time and expense of judicial proceedings. Retention of Powers Settlors can also retain certain powers in irrevocable trusts, such as the power to remove and replace trus - tees and to direct investment of trust assets. These retained powers can provide comfort and control with -
out necessarily causing estate tax inclusion, depend - ing on how they are structured.
4. Family Business Planning 4.1 Asset Protection Irrevocable Trusts
In the US, one of the most popular and effective meth - ods for asset protection planning is the use of irrevo - cable trusts. These trusts, when properly structured, can shield assets from future creditors while still allow - ing for long-term control and management. IDGTs and SLATs A common example is the IDGT, which allows the grantor to transfer assets out of their estate for estate tax purposes while continuing to pay the income tax. This reduces the taxable estate and helps preserve the trust’s value for beneficiaries. Some jurisdictions also permit the use of spousal lifetime access trusts (SLATs), which allow one spouse to benefit from the trust while the assets remain protected from creditors and estate taxes. Spendthrift provisions In addition, these trusts may also include spendthrift provisions, which are designed to protect beneficiar - ies by restricting their ability to transfer their interest in the trust – either voluntarily or involuntarily. This restriction prevents creditors from accessing trust assets to satisfy a beneficiary’s personal debts, as long as the assets remain within the trust. Spendthrift clauses are a reliable tool for shielding inherited wealth from risks such as divorce, litigation or financial mis - management. Spendthrift trusts Additionally, some US jurisdictions recognise self-set - tled spendthrift trusts. These trusts include spendthrift provisions even when the grantor is also a beneficiary, offering an extra layer of protection for the grantor’s assets. LLCs LLCs are another popular tool. When properly formed and maintained, an LLC can protect personal assets from business liabilities and vice versa.
592 CHAMBERS.COM
Powered by FlippingBook