Estate laws, like any other laws, change with the times. As the world changes, these laws have to change to keep up with the needs of the people and ensure they can continue managing their estate effectively and minimize disputes. In April 2023, the state of Tennessee made several notable changes to its probate laws to make estate administration dispute resolution easier for involved parties. These changes include:
- The ability for a trustee and qualified beneficiaries to agree to terminate a noncharitable irrevocable trust without court approval under select circumstances
- Expanded virtual representation
- The power for a trustee to appoint multiple successor trustees or additional trustees to serve alongside them
- New, streamlined procedures for small estates (estates with no real property and value not exceeding $50,000
- Expanded nonjudicial settlement agreements for probate disputes
While there is plenty of ground to cover across these five bullet points, in this article, we will examine the last point in further detail—and show what these recent changes to nonjudicial settlements mean for your estate planning and administration in the state of Tennessee.
What is a Nonjudicial Settlement Agreement?
In Tennessee, nonjudicial settlement agreements provide a way for beneficiaries and trustees of a trust to resolve disputes and modify the trust’s terms without having to go through court. This is a convenient way to solve conflicts between beneficiaries and trustees or adjust a trust to better meet changing circumstances.
Without having to go to court, trust dispute resolution takes far less time and avoids the risk of costly proceedings. Through a settlement agreement, beneficiaries and trustees can clarify any ambiguities that hadn’t been considered at the time the trust was first drafted. If a provision of the trust isn’t working out, a settlement agreement can also modify that provision to change how the trust is administered.
For example, suppose a trust document states, “The trustee shall distribute income to the ‘primary beneficiaries’ annually.” This provision may sound typical and ordinary, but if the term ‘primary beneficiary’ isn’t clearly defined, you can run into trouble. Does ‘primary beneficiary’ exclusively refer to only children of the settlor? And does the ‘income’ mentioned refer to realized capital gains or only dividends and interest?
In this example, a nonjudicial settlement agreement means you don’t have to petition a court for interpretation—the trustee and trust beneficiaries can agree on more concrete meanings for ambiguous terms together.
Take another example—say a trust states, “The trustee shall distribute the principal to the beneficiaries at age 25.” In a vacuum, there is nothing wrong with this provision. But the problem arises if some beneficiaries are approaching 25 but are financially irresponsible, in which case distributing the principal to them in full could prevent those funds from providing the most long-term benefit for the beneficiaries as the decedent originally intended.
Here, trustees and beneficiaries can enter a nonjudicial settlement agreement to change the terms of the trust to delay full distribution until age 30, provide staggered distributions, or introduce discretionary distributions based on need, education, or health expenses.
Another place where these settlement agreements can come in handy is if there is an error in drafting the trust document. If an ambiguity is caused by a clear scrivener’s error that could be easily corrected, a nonjudicial settlement allows for simple corrections to be made without expensive litigation.
As long as a nonjudicial settlement does not violate the material purpose of a trust and includes terms and conditions that adhere to Tennessee law, an agreement between involved parties to change or clarify terms will be legally binding.
However, under pre-2023 terms, nonjudicial settlements had limited usage in estate law. Recent changes over the past few years have dramatically widened the scope of how these settlements can be used.
How have Nonjudicial Settlement Agreements changed?
Prior to 2023 in the state of Tennessee, only trustees and beneficiaries could enter into a nonjudicial settlement for the purposes of trust resolution. TN Code § 35-15-111, which covers nonjudicial settlements, was further expanded by Tenn. Code Ann. § 30-2-615. What this annotation does is widen the scope of who can enter into a binding nonjudicial settlement for the purpose of resolving trust disputes—and, in particular, widen their applicability for probate estates.
Above, we talked about trustees and beneficiaries being able to enter into legally binding settlements. Prior to 2023, these were the only parties who could participate in nonjudicial settlement agreements. However, now personal representatives and interested parties can enter into binding settlement agreements as well.
What this means is that estate administration dispute resolution in Tennessee has become much easier for the involved parties. As a result of these changes, settlements can now resolve issues such as:
- How a will is interpreted or constructed
- The liability of a personal representative for actions taken in administering an estate
- Approval of attorney and personal representative fees
- Allowing parties to adjust adjust distributions, compromise creditor claims, or restructure timing of distributions without judicial approval
As long as a settlement agreement does not violate the material purpose of the estate, authorize acts prohibited by other laws, or excuse fraud or breach of fiduciary duty, it can now provide further flexibility and convenience in resolving estate administration disputes. Now, nonjudicial settlement agreements can:
- Handle estate disputes involving sensitive family or financial matters privately and discreetly, rather than dragging them through the public record of court proceedings
- Give the personal representatives of an estate’s decedent broader power to settle ambiguous or disputed matters similar to trustees
- Allow not only beneficiaries but also creditors, heirs, and legatees to have a seat at the table as “interested parties”
Using these settlement agreements for probate matters provides faster, cheaper, more private, and potentially more amicable resolutions to estate administration conflicts that would, prior to 2023, involve a lengthy, exhausting, and often expensive trip through probate court even for minor disputes.
Where to Use Probate Nonjudicial Settlement Agreements
In addition to the original trust-focused use cases of settlement agreements discussed earlier in this article, Tennessee probate nonjudicial settlement agreements can now be used throughout estate law situations such as:
- Clarifying ambiguous will provisions
- Altering the manner or timing of distributions
- Settling creditor claims without a formal court hearing
- Adjusting or reallocating asset distributions
- Privately resolving disputes over entitlement without litigating heirship in court
- Changing out the personal representative may administer the estate (for example, extending the deadline for liquidating estate assets if market conditions are unfavorable)
- Settling potential will contests, elective share claims, or disputes among heirs
- Assigning duties or replacing an estate’s personal representative by agreement rather than by court order
- Settling disputes about how estate taxes or other liabilities are to be allocated among beneficiaries
Solve Probate Disputes with MHPS Law
With a deep understanding of Tennessee probate and estate law, the MHPS legal team is dedicated to helping you find the best solutions for trust and estate administration dispute resolution. Whether you decide to go through a formal court process or take advantage of nonjudicial settlements to resolve an issue, MHPS Law offers personal attention and honest advice. We can serve as personal representatives, trustees, executors, or legal advisors in probate matters to seek the best possible resolution for all involved parties.
Contact MHPS Law today to Schedule a Consultation with our team and get the support and advice you need.
