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Decanting an Irrevocable Trust in 3 Steps

Posted on: July 7th, 2016
decanting trustsThere are many times when one might benefit from a ‘makeover,’ whether it be personal, a home renovation, or by changing the terms of a trust that one manages. While many factors, including life and regulatory changes may prompt a desire for trust modification, many folks believe they are trapped with the terms of an irrevocable trust. Fortunately, irrevocable trusts can be amended under certain circumstances. One option that might be available to allow a trustee to make an adjustment to a trust’s terms is to decant the original trust

Decanting is like a trust makeover. Funds from an existing trust with unfavorable terms are distributed to a new trust with more favorable terms. As the name suggests, decanting a trust is similar to decanting wine: Take wine from one bottle and transfer it to a decanter – separating the unwanted sediments (trust terms) in the original bottle (trust document). Decanting is relatively straight-forward and consists of these three steps:
  1. Verify a decanting statute is in place. Almost half of the United States has decanting laws, but this also means about half the country lacks decanting statutes. Each of the states that TrustCounsel services (North Carolina, Florida, Tennessee, and New York) permits decanting. When a decanting statute is present, determine whether the trustee is permitted to make the desired changes under the statute and the trust document. If so, bypass Step 2 and proceed to Step 3. If a decanting statute is not present, the process is not straightforward, but still may be possible.
  2. Move the trust. If the trust’s current jurisdiction does not have a decanting statute or the existing statute does not permit the desired modifications, it’s time to determine if the trust can be moved to an alternate jurisdiction. If so, proceed with moving the trust, which might require appointing an alternate or co-trustee. Review the jurisdiction’s allowances and limitations with an asset protection attorney to fully take advantage of that jurisdiction’s laws. If the trust cannot be moved, an attorney can advise whether pursuing judicial modification is advisable.
  3. Decant the trust. An estate planning attorney can prepare the necessary documents to decant the trust by “pouring” the assets into a new trust with more favorable terms. All statutory requirements must be followed and state decanting statutes referenced. After the new trust is in place, asset transfers from the old trust into the new trust must occur. This is commonly a simple process and generally involves transfers by deed, assignment, change of owner/beneficiary forms, and the creation of new accounts or retitling of existing accounts.  

When an individual is managing a trust with less than ideal terms, an asset protection and trust attorney can review the trust document, assess your goals, and determine whether decanting or another form of trust modification would help to achieve the goals of the trust in a more efficient and advantageous way. 
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