Overview
In Depth
There is increasing interest among trustees and beneficiaries to resolve disputes and modify trust documents without going to court. For many years, the primary mechanism to accomplish that in Illinois has been the Virtual Representation Statute, 760 ILCS 5/16.1, which allows parties to make such agreements without court involvement, even when minors and unborn beneficiaries may have interests. However, there were aspects of the original statute that made it difficult to apply, and even after it was amended in 2009, the types of disputes and modifications that could be addressed were not entirely clear.
On August 15, 2014, Governor Patrick Quinn approved Senate Bill 2984, amending §§16.1 and 5.3 of the Trusts and Trustees Act (760 ILCS 5/16.1, 5/5.3). The new legislation, Public Act 98–0946, goes into effect on January 1, 2015, and is likely to expand the scope of agreements allowed under §16.1.
In appropriate cases, the statute allows the trustee and certain adult beneficiaries of a trust to enter into an agreement concerning the administration of the trust or duties, powers, responsibilities or actions of the trustee and bind all current and future beneficiaries of the trust, including minors, disabled persons and persons not yet in being, often without the involvement or approval of a court. 760 ILCS 5/16.1(d).
Among other revisions, the amended §16.1 redefines those beneficiaries who may be virtually represented in court proceedings and in connection with nonjudicial settlement agreements under the statute; adds to the class of permissible representatives; clarifies—and potentially expands—the scope of the agreements that are allowed under the statute; and adds specific notice requirements for nonjudicial settlement agreements that affect charitable interests.
In one of the more significant changes, P.A. 98-0946 adds the parents of a minor, disabled or unborn person to the list of permissible representatives, ahead of other beneficiaries with similar interests. Under the amended statute, only if a minor, disabled or unborn person is not represented by a guardian, agent or parent may the person be “represented and bound by another beneficiary having a substantially similar interest with respect to the particular question or dispute.” 760 ILCS 5/16.1(a)(1).
Amended §16.1 also removes the requirement in the prior version of the statute that a “nonjudicial settlement agreement is valid only to the extent its terms and conditions could be properly approved under applicable law by a court of competent jurisdiction.” The new version provides a clear list of issues that are permissible subjects for nonjudicial settlement agreements, without the need for court approval and without regard to whether they could have been approved by a court in the absence of the statute. 760 ILCS 5/16.1(d).
The amended statute requires that the parties to a nonjudicial settlement agreement affecting a charitable interest notify the Attorney General’s Charitable Trusts Bureau in writing of the proposed agreement at least 60 days prior to the effective date of the agreement. 760 ILCS 5/16.1(d)(4.5).
P.A. 98–0946 also amends §5.3 of the Trusts and Trustees Act (760 ILCS 5/5.3), concerning total return trusts, to reflect the changes to §16.1.