By: James Filippi
Today, February 18, 2020, is National Drink Wine Day. In honor of such an important day of recognition, we have decided to write on a topic that some may confuse with the art of wine tasting, decanting. While many wines get better with age, the same cannot be said for some irrevocable trusts. Maybe you’re the beneficiary of trust created by your great grandfather over seventy years ago and that trust no longer makes sense. Or, maybe you created an irrevocable trust over twenty years ago and it no longer makes sense. Wine connoisseurs may ask: Is there 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. (Note: Decanting wine has no application to decanting a trust, unless you bring a bottle of your favorite vino to your attorney’s office!)
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, “decant” refers to the transfer of some or all of the property held in 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 a myriad of different circumstances, including when you’d like to:
- Tweak the trustee provisions to clarify who can or cannot serve as the trustee.
- Expand or limit the powers of the trustee.
- Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust.
- Change a support trust into a full discretionary trust to protect the trust assets 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.
- Add, modify, or remove powers of appointment for tax or other reasons.
- 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?
Decanting must be allowed under applicable state case law or statutory law. Aside from this, 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 property from the existing trust into the new trust. Any assets remaining in the existing trust will continue to be administered under its terms; and, an empty trust will be terminated.
WARNING: 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 available to fix your broken trust and determine which method will work the best for your situation. If you have a trust that has turned to vinegar and isn’t what you want it to be, call our office now.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
