We all need a “do over” from time to time. Life changes, the law changes, and professionals learn to do things in better ways. Change is a fact of life - and the law. Unfortunately, many folks think they’re stuck with an irrevocable trust. After all, if the trust can be revoked, why call it “irrevocable”? Good question.
Fortunately, irrevocable trusts can be changed and one way to make that change is to decant the original trust. Decanting is a “do over.” Funds from an existing trust (with less favorable terms) are distributed to a new trust (with more favorable terms).
As the name may suggest, decanting a trust is similar to decanting wine: you take wine from one bottle and transfer it to another (decanter)—leaving the unwanted wine sediment / trust terms in the original bottle / document. Just like pouring wine from one bottle to another, decanting is relatively straight-forward and consists of these four steps:
1. Determine Whether Your State Has a Decanting Statute.
Nearly half of US states currently have decanting laws. If yours does, determine whether the trustee is permitted to make the specific changes desired. If so, omit step 2 and move directly to step 3.
If your state does not have a decanting statute, the answer isn’t as clear cut. While attempting to decant a trust in a state without a statute certainly can be done, it’s risky. Consider step 2.
2. Move the Trust.
If the trust’s current jurisdiction does not have a decanting statute or the existing statute is either not user friendly or does not allow for the desired modifications, it’s time to review the trust and determine if it can be moved to another jurisdiction.
If so, we can make that happen, including adding a trustee or co-trustee, and taking advantage of that jurisdiction’s laws. If not, we can petition the local court to move the trust.
3. Decant the Trust.
We’ll prepare whatever documents are necessary to decant the trust by “pouring” the assets into a trust with more favorable terms. All statutory requirements must be followed and state decanting statutes referenced.
4. Transfer the Assets.
The final step is simply transferring assets from the old trust into the new trust. While this can be effectuated in many different ways, the most common are by deed, assignment, change of owner / beneficiary forms, and the creation of new accounts.
Get the Most from Your Trust
Although irrevocable trusts are commonly thought of as documents which cannot be revoked or changed, that isn’t quite true. If you feel stuck with a less than optional trust, we’d love to review the trust and your goals to determine whether decanting or other trust modification would help.
If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.