Some people are reluctant to create an irrevocable trust because, as the name implies, the trust is not subject to change once it is created. However, there are some situations in which the trust property can be transferred to a new trust, and that new trust can have different terms than the original. This is known as decanting. Let’s take a look at what it is and how it is useful.
- Changing the Unchangeable: In some situations, the trustee of an irrevocable trust can effectively alter the terms of that trust by decanting the trust property and transferring it to a new trust with new terms. The new trust will have the same beneficiaries as the old, but the terms may allow the trustee to take certain actions the old trust did not.
- Limited Laws: Currently, only a small minority of states have decanting statutes on the books. However, in other states, a court may allow a trustee to decant the trust after approving a trustee’s request. Though state laws differ significantly in some areas, they all allow trustees to act without prior court approval.
- Decanting Situations: A trustee cannot simply decant an irrevocable trust at any time. He or she must use the decanting process in order to aid the beneficiaries. For example, if a beneficiary becomes disabled and the trustee needs to decant trust property in order to take advantage of government disability programs, this is one instance in which decanting is allowable. You should talk to your estate planning attorney for more information about this process and when it may be used.
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