A trust is a legal document that you can set up to give assets to someone else. Trusts can be revocable or irrevocable. If you (the grantor) choose to create a revocable trust, you can modify it at any point during your lifetime. With irrevocable trusts, however, you generally cannot make any changes once you establish this type of trust.
Many individuals are therefore concerned when they hear the term “irrevocable” trust, as they equate the permanency of the term “irrevocable” with the idea that such a trust could become incompatible with their wishes if their circumstances change.
However, there is a way to creatively manage changed circumstances after the creation of an irrevocable trust. This method is known as “trust decanting.”
What Is “Decanting” a Trust in Estate Planning?
The term “decanting” refers to the process of taking an existing irrevocable trust, creating a new trust that has more desirable terms and provisions, and then moving the assets of the initial trust to the new trust.
There are many reasons why decanting a trust may be desirable. One of the most common reasons a trust decanting is considered is to correct drafting errors made in the original trust document. In other circumstances, changes may be needed to better reflect the grantor’s intentions concerning the trust. Perhaps there was a misunderstanding between what the grantor intended and how the document was written.
In other cases, it may be necessary to modify the administrative provisions of the trust, combine two trusts to maximize administrative efficiency, or take advantage of investment opportunities. Frequently, there is just a change of circumstances that was not contemplated when the trust was first created. Trust decanting helps accommodate these types of issues.
Common Examples of Why You May Seek to Decant a Trust
There are many scenarios where decanting may be useful. Below are some common examples:
- A change in the legal jurisdiction of the trust is desired to enable more liberal investment or asset management powers.
- A jurisdiction change is desired due to more simplified trust administration rules of a particular state or more advantageous income tax treatment.
- A grantor wishes to move to a jurisdiction where trust disclosure is less onerous or allows more privacy.
- A grantor/settlor wishes to change the age of when a beneficiary comes into control of assets or wishes to change a beneficiary designation (for example, because of new additions to the family or a change in relationships).
- A grantor/settlor wishes to modify the terms of trusteeship such as changing their succession order, their investment powers, or how they are compensated, or creating a power to remove trustees.
- A merging of multiple trusts may be desirable to reduce costs and create a better management structure.
- A trust termination date needs to be extended to protect one or more beneficiaries.
Consult With an Estate Planning Professional
The foregoing list is not exhaustive, and there are many other factors to consider before deciding to decant a trust. Decanting is an advanced estate planning technique that in almost all circumstances requires the counsel and assistance of a qualified attorney. In some jurisdictions, if an irrevocable trust cannot be decanted, you may be able to modify the trust through the court process or convert it to a unitrust.
If you are considering decanting an irrevocable trust, your first course of action should be to speak with your attorney. To get started on your estate plan or elder law planning, contact the Laiderman Law Firm.