Trust Decanting: A Guide to Modern Estate Planning Techniques

With professional guidance from White Oak Wills & Trusts, LLC, discover the transformative potential of trust decanting to adapt estate plans to changing needs.

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What Is Trust Decanting?

Decanting a trust means transferring trust property from the old trust (also known as the first trust) to a new trust (also called a second trust). The idea behind trust decanting is that if the trustee has the discretion to distribute the property for the benefit of the beneficiaries, then it should also have the power and discretion to transfer the assets to another trust for the benefit of the same beneficiaries.

Decanting statutes in various states allow the decanting of irrevocable trusts, which are often hard to amend or change. Trust decanting is like vinification; with it, trustees possess the power to transfer trust assets from one irrevocable trust to a fresher trust instrument. This estate planning tool introduces flexibility to what was once considered unalterable.

States have been legislating trust decanting authority since the early 1990s, recognizing that a trustee, alongside financial advisors, might extract the finer points of an estate and seamlessly integrate them within amended frameworks that better suit the beneficiaries’ evolving needs. State law typically dictates the extent to which the trust provisions may be adjusted.

At White Oak Wills & Trusts LLC, we will not only oversee the transfer of assets but also honor the initial grantor’s vision alongside current beneficiary needs. As an experienced team in estate planning, we consider it our duty to wield decanting’s potential with grace and precision, experience, and skills.

Reasons for Decanting a Trust

Trusts, especially irrevocable trusts, are often considered as set in stone. But what if change becomes imperative? The most common reason to decant is when the aim is to update trust terms without the need for beneficiary consent. After all, beneficiaries may not always be reachable or agreeable to changes.

Below are some reasons to decant a trust.

  • Correction of Errors: Minor inaccuracies—typos, misdated documents, or misnamed individuals—can warrant decanting to protect the integrity of the trust’s purposes.
  • Tax Planning Considerations: Adapting to changing estate and generation-skipping transfer tax (GST tax) landscapes ensures that a trust remains tax-efficient and compliant with both federal and state laws.
  • Asset Protection Enhancements: Adhering to changes in common law or shifting financial circumstances, decanting can strengthen safeguards against creditors or divorce proceedings.
  • Adaptation to New Laws or Circumstances: Civil or tax laws evolve, and so might the conditions of beneficiaries. To align the trust with current legal standards or revised life circumstances, decanting is often deemed necessary.
  • Extended Trust Term: A trust’s term might be extended to continue providing for future generations, accounting for lifespan changes and encompassing extended beneficiary timelines.
  • Modification to Trust Terms: Sometimes, changing trustee powers or insert decanting provisions is crucial to stay attuned to the beneficiaries’ evolving needs.

How Trust Decanting Works

The governing document and the state where the trust resides, known as the trust situs, greatly influence the ease of this process. State statutes may vary, but they typically provide a framework determining whether decanting is permissible and laying out the necessary steps. Some states require notice to be given to beneficiaries or even court approval, while others do not.

Here’s a concise breakdown of the decanting process:

  1. Review the original trust’s terms to ensure decanting is allowed and that the trustee has the discretion over distributions.
  2. Assess relevant state statutes to confirm legality and understand procedural requirements.
  3. Determine the goals of decanting, such as addressing a beneficiary’s special needs trust or altering powers of appointment.
  4. Notify the parties to the trust based on the state’s laws.
  5. Draft the terms of the receiving trust to reflect the necessary changes while respecting the original trust’s intent.
  6. With or without an attorney, the trustee moves the assets from the distributing trust to the receiving trust.
  7. Administer the new trust in line with its provisions and the best interests of the beneficiaries.

Trustees are pivotal in altering the trust provisions, which may impact tax attributes such as income tax, gift tax, or a general power of appointment. The trust protector also play a role, with ascertainable standards guiding their decision to approve the decanting process.

In some cases, trust decanting can raise concerns about altering a settlor’s intent or affecting external parties. Addressing such complexities is part of the trustee’s responsibility to assess whether decanting aligns with the trust’s original purpose and benefits the beneficiaries without imposing undue social costs.

The nuances of this strategy can be explored through a Critical Perspective on the subject for those intrigued by the intersection of law, foresight, and finance.

 

Is Trust Decanting Permitted in Oregon?

The short answer is that Oregon currently does not have a state decanting statute. Unlike some states that provide explicit legal frameworks, Oregon’s state laws do not offer a statutory process for trust decanting.

Without a specific statute, trustees in Oregon face uncertainties when considering modifying trust terms to better serve the needs of beneficiaries. However, in Oregon, the lack of statutory guidance means trustees must navigate the process carefully, typically relying on other provisions of trust law or potentially seeking a private letter ruling from the Internal Revenue Code.

Although Oregon does not provide a legal framework for trust decanting, it is not entirely off-limits. Trustees may have the option to move the trust to a jurisdiction that permits decanting if the terms of the trust provide for such a move and all parties’ consent is obtained. Neighboring Washington, D.C. for instance, does have a decanting statute that could be an option.

At White Oak Wills & Trusts, LLC, we understand the nuances involved in trust administration and the importance of adapting to evolving circumstances, such as keeping your will and trust up to date. Our professionals are adept at navigating the complexities of trust laws across states. They can guide trustees on the possibility of decanting an Oregon-based trust to a jurisdiction like Washington, D.C., where such actions are explicitly authorized by law.

Navigating these intricate trust matters requires meticulous attention, especially when dealing with creditors or ensuring compliance with the law. Although Oregon’s landscape may present challenges due to the absence of a decanting statute, there are avenues available to modify an irrevocable trust you can explore with a trusted estate planning lawyer.

Speak With Our Experienced Trust Attorneys Today.

From our experience, laws, families, and assets change. Flexibility within an estate plan is not only desired but also required to adapt to these changes.

Trust decanting is one such instrument of adaptability. As trustees, you have the fiduciary duty to manage trust assets in the best interest of the beneficiaries. When a trust’s terms become outdated or ineffective, amendments may be necessary to safeguard assets and fulfill the grantor’s original intent. Decanting, akin to transferring wine from one bottle to another to improve its quality, allows the trust’s assets to be transferred to a new trust with more relevant terms.

Some of the ways decanting can be used strategically include:

  • Adding a successor trustee for continuity
  • Adjusting benefits and protection for the beneficiaries
  • Reviewing trust documents to ensure accuracy
  • Aligning objectives and current laws for estate planning

Estate planning is a meticulous process where an insightful perspective can be critical. It’s why we at White Oak Wills & Trusts LLC guide our clients on the intricacies of trust decanting and amendment. Contact us, and let’s discuss the nuances of your trust and potential decanting strategies.

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