What Is Trust Decanting?
When a bottle of wine is decanted, it is poured from one container into another to improve its quality.
Trust decanting works in a similar way.
When a trust is decanted, the accounts and property from an existing trust are distributed into a new trust with updated and more favorable terms. Because many trusts are designed to last for decades, flexibility is essential. Trust decanting provisions allow a trust to adapt to changes in circumstances, beneficiaries, and governing laws without requiring court involvement.
When Should a Trust Be Decanted?
Trust decanting may be appropriate in several common situations:
1. Clarify ambiguities or drafting errors
As trust beneficiaries pass away and younger generations inherit, vague language or drafting mistakes in the original trust may surface. Decanting can be used to clarify unclear provisions and correct errors that could otherwise create disputes or administrative challenges.
2. Provide for a special needs beneficiary
If a trust is not structured properly for a beneficiary with special needs, receiving distributions could jeopardize eligibility for government benefits. Decanting allows a trust to be converted into a supplemental needs trust that preserves those benefits while still providing financial support.
3. Protect trust assets from a beneficiary’s creditors
Trusts that give beneficiaries direct access or control over assets can expose those assets to creditors, lawsuits, or divorces. Through decanting, a trust can be converted into a discretionary trust that offers stronger asset protection and shields the inheritance from creditor claims.
4. Combine or divide trusts to better meet beneficiaries’ needs
A beneficiary may receive distributions from multiple trusts with similar terms, increasing administrative costs. Decanting can merge those trusts into one. Conversely, a single trust with multiple beneficiaries can be decanted into separate trusts, each tailored to the unique needs of an individual beneficiary.
5. Change the governing law or situs
State and federal laws evolve over time. A trust that was once governed by favorable laws may become inefficient or tax-disadvantaged. Decanting allows a trust to move to a different jurisdiction with more advantageous laws and administrative benefits.
Final Thoughts on Trust Decanting
Including trust decanting provisions in an irrevocable trust or in a revocable trust that will later become irrevocable is critical to long-term success. These provisions provide flexibility, protect beneficiaries, and help ensure the trust remains practical and effective without unnecessary court involvement.
If you are interested in adding trust decanting provisions to your trust or would like an existing trust reviewed, call us today now.
