What are Nonjudicial settlement agreements in Nevada?

Published On: May 1st, 2022|Categories: Estate and Trust Planning, Probate|

Nonjudicial settlement agreements in Nevada are a method to settle disputes between interested persons over administrations of irrevocable trusts without involvement of courts.  NRS §164.940 and §164.942 (2015) govern who must be involved and what disputes may be resolved to create an enforceable agreement.  In short, a nonjudicial settlement agreement is a method to amend an irrevocable trust.

At the outset, the individual thinking about whether to implement a nonjudicial settlement agreement has to consider how much money is at stake. These types of agreements by nature demand each be customized according to the circumstances at hand.  The more money and property involved, the more likely customization will be required. If not much money is involved, and if the trust is so defective, depending upon the circumstances, consideration should be given to leaving the trust be, or possibly collapsing it. The negatives of the trust may be tolerable and fees to establish a new trust may be less.

Two Examples When A Nonjudicial Settlement Agreement Will Work:

Circumstances may exist during the administration of a trust that could not have been foreseen when the trust was established. For example, a trust was established in one state in the Union and later it is moved to another state, which likely has different laws and public policies. Simply a beneficiary moving to another state could also cause complications not imagined. Some states in the Union have what the author calls “claw-back” provisions that no matter the state in which the trust is administered, the state where the trust was originally established can claim the trust is still subject to its laws — typically tax provisions.  While nexus limit states’ reach, such states still attempt to hold back the tide of exiting trusts because other states have laws repugnant to public policy of state of origination. Many times such states are simply trying to maintain its tax base. The examples given in this paragraph is just a couple of uncountable circumstances requiring consideration and should not be used as a measuring stick.

Dispute Defined:

In reality “a dispute” is liberally applied to justify the use of a nonjudicial settlement agreement to amend irrevocable trusts.  In other words, a dispute could be over something as simple as trustee’s discretion.  The following is a list, “without limitation” of what may be resolved:

  1. The investment or use of trust assets;
  2. The lending or borrowing of money;
  3. The addition, deletion or modification of a term or condition of the trust;
  4. The interpretation or construction of a term of the trust;
  5. The designation or transfer of the principal place of administration of the trust;
  6. The approval of a trustee’s report or accounting;
  7. The choice of law governing the construction of the trust instrument or administration of the trust, or both;
  8. Direction to a trustee to perform or refrain from performing a particular act;
  9. The granting of any necessary or desirable power to a trustee;
  10. The resignation or appointment of a trustee and the determination of a trustee’s compensation;
  11. The merger or division of trusts;
  12. The granting of approval or authority, for a trustee to make charitable gifts from a noncharitable trust;
  13. The transfer of a trust’s principal place of administration;
  14. Negating the liability of a trustee for an action relating to the trust and providing indemnification therefor; and
  15. The termination of the trust.

The list of the above 15 items and inclusion of the language “without limitations” in NRS §164.940 significantly broadens what is considered “a dispute” to find cover to amend an irrevocable trust during an administration. Except for “violating a material purpose of the trust” or doing something a court “could not . . . properly approve[],” if you can think of something you want to change, you can create a dispute to be resolved. In other words technically, there does not have to be a dispute, but a desire to essentially modify a trust.

Violating a Material Purpose of the Trust:

A material purpose of the trust is the main reason or reasons a trust was created and funded. For example, a trust was created to benefit (pay income and principal) to a specific individual(s). Later for whatever reason is decided an individual should no longer be a beneficiary. Another example is merely changing a clause allowing a trustee to decide how to allocate capital gains to beneficiaries. Both could be considered a violation of a material purpose of the trust – benefiting individuals named therein, and reducing cash flow to a beneficiary by re-allocating a tax burden.

Who is an Interested Person:

Technically, NRS §§164.940 and 164.942 use the terms “indispensable party” but is defined as an “interested person” pursuant to NRS §132.185 (2015).  An “’Interested person’” means a person whose right or interest under [a] trust may be materially affected by a decision of a fiduciary . . .   The fiduciary . . . shall determine who is an interested person according to the particular purposes of, and matter involved in, a proceeding.”  Interpreted into plain English, an interested person revolving trusts are current acting trustees, and all beneficiaries (present and future interests / aka income and principal), and possibly grantors/trustors (one who created and initially funded the trust). There may be other individuals who may be interested persons depending upon what is written in the trust.

NRS §132.185 evolved from hardly defining who an “interested person” is, to an almost exhaustive list of persons described in circumstances, to finally in 2015 to deferring to trustees or a courts to determining who an “interested person” is. The reasons are an endless number of factors adding or detracting to consider in the presented circumstance. Thus an endless list of “interested persons” in previous iterations of NRS §132.185 turned out to be cumbersome, confusing, and unintentionally created inconsistencies rending such list unhelpful.

Effect of  Interested Party (aka Family) Dynamics:

Like in most trusts, family dynamics is a significant factor in determining whether a course of action should be taken, especially when a nonjudicial settlement agreement is involved. Typically, trust administrations seem to defy gravity from the perspective of the average beneficiary. They frequently cannot understand why their interests in trusts are not their property – many simply cannot understand why they cannot have full control. With that mindset in place, any perceived slight a trustee may have done, while properly performed in good faith, frequently are taken as an affront to the beneficiary. Such slights fester and pile inflaming or confirming the beneficiaries’ mindset. A competent trust administration attorney, in addition to considering the factors discussed above, will probe family / beneficiary dynamics to see if a nonjudicial settlement agreement will work.  All the stars may be aligned according to Nevada law, but if family dynamics are great enough, a nonjudicial settlement agreement may not be a viable technique.

A Release Valve Exists to Get Around Family Dynamics:

If family dynamics are so great and the changes to the trust are important, NRS §164.942(4)  provides a release valve to an interested party to request court confirmation. There are pros to seeking court confirmation – like accomplishing a fix over the objecting voices of other interested parties.  The con is possibly airing dirty laundry in open court and thus to the public. Interested parties may also lawyer up causing delays, protracted negotiations, and skyrocketing legal fees. Also, interested parties may bring up unrelated concerns or gripes that quickly become entangled to the task at hand and cause unforeseeable negative consequences.  I am sure paying college tuition for a lawyers’ children, via legal fees, is enough to cause most, if not all, trustors to rollover in their graves.

Selecting a Competent Trust Administration Attorney:

Caution should be exercised in selecting an attorney to assist in helping a trustee determine who the “interested persons” are.  Only after years of experience in administering trusts will an attorney be properly qualified to assist.  Attorneys who merely focus their practices on estate planning along should be immediately disregarded. While loosely related because trusts are  involved, establishing trusts and administering trusts involved different skill sets. Establishing trusts (when tax implications are not involved) is a relatively easy skill set to acquire. But competent trust administration attorneys require additional and more involved skill sets. A plethora of estate planning attorneys exist to set up trust, mostly revocable living trusts. Such a skill set, while helpful, is only a small part of the skills needed to understand the circumstances, affects upon “interested persons,” affects upon the main purpose of the trust, and possible tax ramifications are just a few considerations.

Nonjudicial Settlement Agreements the Author has implemented or seen used:

  1. To move trusts out of one state lacking laws or are into another state that has laws friendly to the desires of those involved to accomplish a certain change.
  2. Clarify language revolving distributions to beneficiaries.
  3. Updating trust language to current tax environment.
  4. Clarifying trustee duties and authorities.
  5. Merging of trusts whose value of property are too small to administer efficiently.
  6. Adding or modifying trustee selection clauses in a trust where it and applicable state laws lacked proper guidance.

Things to Watch Out For:

  1. Inexperienced estate planning attorneys who do not possess sufficient experience in trust administration.
  2. Attorneys who do not understand the application of accounting income as defined in the trust and/or in the applicable state law.
  3. Attorneys who do not understand estate tax and income tax ramifications.
  4. The nonjudicial settlement agreement is an over lawyered technique. If appliable, other workarounds should be considered.

Quick Checklist:

  • Determine whether the dispute violates a material purpose of the trust or is something a court could not properly approve,
  • All interested persons,
  • Effects during transition (sorry, this is hard to imaging without an experienced attorney),
  • Whether the value of the trust and what is to be done is worth the effort and legal fees,
  • Effect of family/beneficiary dynamics upon the process.


In the end, if all the factors and party dynamics discussed above are aligned, nonjudicial settlement agreements are a wonderful technique to bring new life to irrevocable trusts and perpetuate family wealth.

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