This is another in a series of blogs on the basics of estate planning. This week, we’ll look at decanting.
Decanting is the process of moving the assets of a trust from one trust, the original trust, to a new trust with different terms. While this may be allowed by case law in some states, it is better to rely on a state statute to decant. Statutes allowing decanting have been spreading. There are now statutes in at least 26 states that allow decanting. Here is a link to an exhaustive review of decanting statutes in the various states.
Decanting can be used for many purposes. For example, you might decant into a trust that has a discretionary standard for distributions rather than a support trust in order to obtain the increased asset protection. You may want to decant to a trust that adds or removes a power of appointment. You might want to decant to a trust to get a different tax result.
Some state statutes are broader than others and allow greater modification in the new trust. Due to this difference in statutes, sometimes it can be advantageous to move the situs of the trust to a state with a broader statute prior to doing the decanting.
State courts routinely recognize that trustees can eliminate beneficiaries and make other modifications of the trust through decanting in the pursuit of their fiduciary duty. However, there does not appear to be an affirmative duty for the trustee to decant. This is true under the Uniform Trust Decanting Act and under various court cases, such as Ferri v. Powell-Ferri, 72 N.E.3d 541 (Mass. 2017). Thus, at least at present, decanting is one tool a trustee may use, but is not required to use.
In upcoming blogs, I’ll discuss more on the basics of estate planning, including the use of Trust Protectors to modify a trust.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128