Irrevocable Trust Modification: Clarifying Georgia Law

• Publication year: 2022
• Pages: 0018

Irrevocable Trust Modification: Clarifying Georgia Law No. Vol. 28 No. 2 Pg. 18 Georgia Bar Journal October, 2022

To understand and evaluate the competing approaches concerning the use of nonjudicial settlement agreements, one must look to the Code sections themselves, the legislative history behind them and the intent of the authors of the revisions to the Trust Code.

BY MADALYN DAVIS AND KRISTIN MILLER

The 2020 amendments (effective Jan. 1, 2021) to the Official Code of Georgia Annotated (O.C.G.A.), Title 53, Chapter 12, enabled estate planning practitioners in Georgia to more easily modify noncharitable irrevocable trusts, specifically through the use of nonjudicial settlement agreements (NJSAs). Although the new Code sections provide clarity on the use of NJSAs for trust modification, they also establish limitations on their use. Debate has ensued on the interpretation of these limitations with regard to NJSAs entered into during the settlor's lifetime. Practitioners have developed two primary approaches for determining whether an NJSA is permitted while the settlor is living. The first approach believes the limitations on NJSAs prohibit all trust modifications during the settlor's lifetime. The second approach adopts the position that the current statutes leave room for NJSAs to make certain permissible modifications during the settlor's lifetime. To understand and evaluate the competing approaches, one must look to the Code sections themselves, the legislative history behind them, and the intent of the authors of the revisions to the Trust Code.

The addition of O.C.G.A. § 53-12-9, which governs NJSAs, allows "the trustee, any trust director, and all other persons whose interests would be affected" to enter into an NJSA "with respect to any matter involving the trust."^[1] However, this broad authorization is limited by its succeeding paragraphs, which provide:

(b) A nonjudicial settlement agreement:

(1) Shall be valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this Code section or other applicable law; and

(2) Shall not be valid with respect to any modification or termination of an irrevocable trust when the settlor's consent would be required in a proceeding to approve such modification or termination under subsection (b) of Code Section 53-12-61.^[2]

A full understanding of the limitation set forth in O.C.G.A. § 53-12-9(b)(2) requires analysis of the cross-reference to O.C.G.A. § 53-12-61(b), which in turn provides:

During the settlor's lifetime, the court shall approve a petition to modify or terminate an irrevocable trust, even if the modification or termination is inconsistent with a material purpose of the trust, if the settlor and all qualified beneficiaries consent to such modification or termination and the trustee has received notice of the proposed modification or termination.....(Emphasis added.)

Thus, O.C.G.A. § 53-12-9(b)(2) clearly limits the use of NJSAs during the settlor's lifetime but creates an ambiguity when read in conjunction with O.C.G.A. § 53-12-61(b). This ambiguity is the basis for the two competing approaches. Either:

1. Modification through an NJSA may never be used during the settlor's lifetime because, under O.C.G.A. § 53-12-9(b)(2), an NJSA is not valid with respect to any modification or termination of an irrevocable trust when the settlor's consent would be required under O.C.G.A. § 53-12-61(b); and, as set out above, O.C.G.A. § 53-12-61(b) requires the settlor's consent for all modifications during the settlor's lifetime; or

2. A modification through an NJSA is permissible during the settlor's lifetime because the inquiry does not end with a reading of O.C.G.A. § 53-12-61(b); rather, O.C.G.A. § 53-12-61(d), which authorizes the court, "upon petition," to modify or terminate a trust under six specific circumstances, implicitly permits such modifications without the settlor's consent.^[3]

A strict reading of these Code sections leaves room for ambiguity, leading practitioners to look at the Code's legislative history, which provides additional context and clarity. Although Georgia did not directly adopt the provisions of the Uniform Trust Code (UTC), the Legislature did rely heavily on UTC 411^[4] in drafting the provisions in question. When UTC 411 was originally drafted, the Estate & Gift Tax Committee of the American College of Trust & Estate Counsel (ACTEC) voiced concern regarding the following language in UTC 411(a):

A...