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Is Decanting the Answer to Modify an Irrevocable Trust?

Posted by John Henry | Jul 31, 2023 | 0 Comments

A trust is a legal document that you can set up to give assets to someone else. Trusts can be revocable or irrevocable. If you (the grantor) choose to create a revocable trust, you can modify it at any point during your lifetime. With irrevocable trusts, however, you generally cannot make any changes once you establish this type of trust.

Many individuals are therefore concerned when they hear the term “irrevocable” trust, as they equate the permanency of the term “irrevocable” with the idea that such a trust could become incompatible with their wishes if their circumstances change.

However, there is a way to creatively manage changed circumstances after the creation of an irrevocable trust. This method is known as “trust decanting.”

What Is Decanting” a Trust in Estate Planning?

The term “decanting” refers to the process of taking an existing irrevocable trust, creating a new trust that has more desirable terms and provisions, and then moving the assets of the initial trust to the new trust.

There are many reasons why decanting a trust may be desirable. One of the most common reasons a trust decanting is considered is to correct drafting errors made in the original trust document. In other circumstances, changes may be needed to better reflect the grantor's intentions concerning the trust. Perhaps there was a misunderstanding between what the grantor intended and how the document was written.

In other cases, it may be necessary to modify the administrative provisions of the trust, combine two trusts to maximize administrative efficiency, or take advantage of investment opportunities. Frequently, there is just a change of circumstances that was not contemplated when the trust was first created. Trust decanting helps accommodate these types of issues.

Common Examples of Why You May Seek to Decant a Trust

There are many scenarios where decanting may be useful. Below are some common examples:

  • A jurisdiction change is desired due to more simplified trust administration rules of a particular state or more advantageous income tax treatment.
  • A grantor/settlor wishes to modify the terms of trusteeship such as changing their succession order, their investment powers, or how they are compensated, or creating a power to remove trustees.
  • A merging of multiple trusts may be desirable to reduce costs and create a better management structure.

Consult With an Estate Planning Professional

The foregoing list is not exhaustive, and there are many other factors to consider before deciding to decant a trust. Decanting is an advanced estate planning technique that in almost all circumstances requires the counsel and assistance of a qualified attorney. In some jurisdictions, if an irrevocable trust cannot be decanted, you may be able to modify the trust through the court process or convert it to a unitrust.

If you are considering decanting an irrevocable trust, your first course of action should be to speak with an attorney in your area.

About the Author

John Henry

Texas Attorney John B. Henry, III, practices throughout Texas, including Harris County, Jefferson County, Galveston County, Fort Bend County and the surrounding counties. Mr. Henry is a native of Texas, and he brings his perspective and experience to represent his client with the knowledge and ca...

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