We write a lot about trusts here at Epilawg: selecting the right trustees, how trusts can be useful during periods of incapacity, and utilizing trusts for blended families, just to name a few recent posts.
What we have not discussed is the situation that can arise when the need to amend a trust is necessary or desired. Amending a trust could be necessary to add or change administrative provisions. Other amendments could be more complicated and lead to serious repercussions. For revocable trusts – trusts in which the trustee generally can amend or revoke a trust altogether – amending is easily accomplished. However, attempting to amend an irrevocable trust can be difficult, if not impossible, depending on the provisions in the trust instrument. Typically, terms of irrevocable trusts cannot be amended or revised until the terms or purposes of the trust have been completed.
Decanting Irrevocable Trusts
A possible option to assist with amending an irrevocable trust is a process called decanting. Essentially, decanting a trust means to distribute the assets from one trust to a new trust – with the same beneficiaries, but with amended terms. The rationale that underlies decanting is that if a trustee has the discretionary power to distribute property to, or for the benefit of, one or more current beneficiaries, then the trustee has a special power of appointment that should enable the trustee to distribute the property to a second trust for the benefit of such beneficiaries.
Decanting States
States that allow decanting permit a trustee with the discretion described above to distribute the principal of a trust (the “original trust”) in favor of another trust (the “new trust”), which may have terms different from the original trust. These states are:
- Alaska
- Arizona
- Delaware
- Florida
- Nevada
- New Hampshire
- New York
- Ohio
- South Dakota
The state statutes vary as to:
- the similarities required between the identity of the beneficiaries and their interests in the original trust and the new trust,
- the ability of a beneficiary who is a trustee to exercise a decanting power and
- whether the trustee is required to provide notice to the beneficiaries of the original trust.
All decanting statutes require that the trustee have some discretion over distributions from the original trust in order to be able to take advantage of the decanting statute. However, the level of discretion varies from state to state.
States without decanting statutes require trustees to petition a court in order to modify irrevocable trust terms. Another possible option is to change the trust situs and governing law of the trust to a jurisdiction that allows decanting.
As always, if amending an irrevocable trust is something you would like to consider, be sure to contact an estate planning attorney in your area.
