While many wines get better with age, the same cannot be said for some irrevocable trusts. Maybe you are the beneficiary of a trust created by your great-grandfather over 70 years ago, and that trust no longer makes sense. Or maybe you created an irrevocable trust over 20 years ago, and it no longer makes sense for your current situation. Wine connoisseurs may wonder if there is any way to fix an irrevocable trust that has turned from a fine wine into vinegar. You may be surprised to learn that under certain circumstances, the answer is yes—by decanting the old, broken trust into a brand new one.
What Does It Mean to Decant a Trust?
Wine lovers know that the term decant means to pour wine from one container into another to open up the aromas and flavors of the wine. In the world of irrevocable trusts, decanting refers to the transfer of some or all of the accounts and property owned by an existing trust into a brand new trust with different and more favorable terms.
When Does It Make Sense to Decant a Trust?
Decanting a trust makes sense under myriad circumstances, including when you would like to make the following types of changes:
- Tweak the trustee provisions to clarify who can or cannot serve as trustee
- Expand or limit the trustee’s powers
- Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust
- Change a trust in which a beneficiary is entitled to receive their inheritance at a certain point or for certain purposes into a full discretionary trust in which the trustee decides when money will be given to the beneficiary in order to protect the trust’s accounts and property from the beneficiary’s creditors
- Clarify ambiguous provisions or drafting errors in the existing trust
- Change the governing law or trust situs to a less taxing or more beneficiary-friendly state
- Merge similar trusts into a single trust for the same beneficiary
- Create separate trusts from a single trust to address the differing needs of multiple beneficiaries
- Provide for and protect a special needs beneficiary
What Is the Process for Decanting a Trust?
A state’s statutes or case law can allow decanting. Additionally, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.
Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions. The trustee must then transfer some or all of the accounts and property from the existing trust into the new trust. Any accounts or property remaining in the existing trust will continue to be administered under its terms; an empty trust will be terminated.
Decanting Is Not the Only Solution to Fix a Broken Trust
While decanting may work under certain circumstances, fortunately, it is not the only way to fix a “broken” irrevocable trust. Our firm can help you evaluate options for fixing your broken trust and determine which method will work best for your situation. If you have a trust that has turned to vinegar and is not what you want it to be, give us a call.