5 RESONS TO DECANT A TRUST
Today, many estate plans contain multi-generational irrevocable trusts. Because trusts like these are designed to span multiple decades, they should include trust decanting provisions to address changes in circumstances, beneficiaries, and laws.
Trust decanting provisions ensure the success, flexibility, and longevity of the trust by:
Clarifying ambiguities and drafting errors
Providing for an unforeseen special needs beneficiary
Protecting trust property from a beneficiary's creditors
Merge similar trusts into one or separate one trust into multiple
Adapt to changing tax law
What is trust decanting?
Think about trust decanting this way; when a bottle of wine is decanted, it is poured from one container into another. When a trust is decanted, the accounts and property from the existing trust are removed and distributed into a new trust. This is done when the structure of the trust needs to undergo major changes.
When should a trust be decanted?
Provisions for trust decanting should be included in trusts that are intended to last decades into the future. Decanting can do the following:
Clarify ambiguities or drafting errors in the trust. As trust beneficiaries die and younger generations become new heirs, vague provisions or outright mistakes in the original trust may become apparent. Decanting can be used to correct these problems.
Provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary may cause the beneficiary to lose government benefits. Of course, this type of thing is difficult to plan for multiple generations in advance. Decanting can be used to turn a trust into a full special needs trust.
Protect the trust’s accounts and property from the beneficiary’s creditors. A trust that gives the beneficiary control over their inheritance puts that inheritance at risk of being snatched by creditors. If the beneficiary is ever sued, the inheritance could disappear rapidly. Decanting can be used to convert a trust without any asset protection features into a fully discretionary trust that the beneficiary’s creditors won't be able to reach.
Merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts that have similar terms. Decanting can be used to combine these trusts into one and reduce administrative costs and oversight. Also, a single trust that has several beneficiaries with differing needs can be decanted into separate trusts tailored to each beneficiary.
Adapt to changing laws. Changes in state and federal laws can negatively affect the taxation of a multigenerational trust. Decanting can be used to take an old trust that is governed by laws that have become unfavorable and convert it into a trust that is governed by different and more advantageous laws.
Setting Up Decanting Provisions
Decanting provisions are crucial to include irrevocable trusts. By including decanting provisions, you ensure the success and longevity of the trust. Decanting provisions afford the flexibility necessary to avoid court intervention to fix a trust that no longer makes sense.
If you are interested in adding decanting provisions to your existing trust or creating a new one altogether, call our office at 614-389-9711.
A trust is just one piece of a sound estate plan. Read about all the documents you can use to secure your family's future by downloading our Consumer's Guide to Estate Planning.
About the Author - Gregory S. DuPont, JD, CFP
Greg has been serving clients as an estate and tax planning attorney in Ohio since graduating from Capital University Law School in 1992. He obtained an accounting and finance degree from The Ohio State University. As a Certified Financial Planner, a designation that requires advanced coursework in a complete range of financial subjects, he is a rare financial professional who can provide cross-disciplinary solutions from the legal, tax and investment perspectives.
Greg is the co-author of the book: Protecting Your Future with Tax-Free Long-Term Care, and is a contributing author in Jack Canfield's best selling book The Recipe for Success.
He has been named one of Ohio's Top 100 lawyers, an invitation-only designation given by The National Advocates.