De-Can’t I Change That Trust?

Decanting is a term that is used most commonly by wine sommeliers, but in the world of trusts and estates, it is also an important estate planning tool. Wine lovers may decant their wine by pouring the wine from one bottle or container into another, in order to remove unwanted sediment in the wine. For estate planning attorneys, certain trusts can be decanted in a similar matter, by “pouring” the contents of one trust into a new trust, in order to remove any unwanted provisions.

In 2011, the laws changed in the state of New York to allow irrevocable, non-amendable trusts to be changed through the new decanting statute under the Estates, Powers, and Trusts Law. Oftentimes, there are many benefits to creating an irrevocable trust, but doing so limits the power of the creator to make changes to that trust. What if circumstances change in the future and the trust terms as written negatively affect the beneficiaries? Decanting allows the Trustee to essentially re-write the trust agreement with more favorable terms.

While decanting appears to be a simple way to amend non-amendable trusts, there are a number of restrictions and limitations on decanting that one must be aware of when embarking on this endeavor. First, not all trusts can be decanted. The Trustee must have some level of discretion in his ability to distribute the principal assets of the trust to the beneficiaries. Additionally, his level of discretion will affect how different the new trust terms can be. For example, if the Trustee has full authority to distribute the principal of the trust to the beneficiaries, the Trustee has broad power to change the terms of the newly-decanted trust, so long as at least one beneficiary is the same as in the original trust. If, however, the Trustee has only some authority to distribute the principal of the trust to the beneficiaries, the Trustee’s ability to change the trust terms is more restrictive. In this case, the new trust must have all of the same beneficiaries, and the terms regarding the Trustee’s authority to distribute funds to the beneficiaries must be identical to those in the original trust.

Trustees have a fiduciary obligation to act in the best interest of the beneficiaries of the trust, and therefore, decanting is gaining popularity among those Trustees who believe that amending the trust terms will have a positive impact on the beneficiaries. Although there are some restrictions, decanting is a beneficial estate planning tool that should be considered in cases where circumstances in the lives of the beneficiaries of a trust may have changed.

To learn more about the benefits of decanting a trust, and when decanting can be used, contact Katz, Smith & Chwat, PC to set up an appointment.

Posted in: Estate & Trust Administration