Trust Decanting

Decanting a trust is a process that allows you to create a new trust and transfer assets from an existing trust into the new one with modified terms. As an experienced Folsom estate planning lawyer, I have found that trust decanting is not very common among clients, but it does happen enough to warrant the client’s attention. 

In California, there is a specific trust decanting statute, as there is in many other states, that is known as the “Uniform Trust Decanting Act” (UTDA). Additionally, the client must ensure that the trust either authorizes it or does not forbid it. Many states do not permit trust decanting, therefore sometimes trusts are moved into states such as California that allow for it. 

Here are the key aspects of trust decanting as permissible in a state that does allow it, such as California:

1. Purpose of Trust Decanting:
   • The primary purpose of trust decanting is to address limitations or shortcomings in an existing irrevocable trust, such as outdated provisions or restrictions that are no longer in the best interests of the beneficiaries.
2. Types of Trusts Eligible for Decanting:
   • Trust decanting allows for the decanting of a variety of irrevocable trusts, including family trusts, generation-skipping trusts, and other types of irrevocable trusts.
3. Authority to Decant:
   • The trustee of the original trust must have the authority to decant the trust, which may be granted by the trust instrument itself or through the UTDA if it is taking place in a UTDA state.
4. Modifications Permitted:
   • Trust decanting can involve various modifications, including changing the trust’s distribution provisions, extending the trust’s duration, and updating trustee powers.
5. Notice to Beneficiaries:
   • Before decanting, the trustee must provide notice to the beneficiaries and, in some cases, obtain their consent. The extent of beneficiary involvement depends on the specific circumstances and terms of the trust.
6. Approval by the Court:
   • If the trust document does not grant the trustee authority to decant, or if the proposed decanting is not consistent with the terms of the trust, the trustee may need to seek court approval for the decanting.
7. Drafting the New Trust:
   • When decanting a trust, a new trust instrument is created with the desired modifications. This new trust must comply with California law or the terms of the UTDA if the trust is moved to a UTDA state.
8. Transferring Assets:
   • The trustee transfers assets from the original trust into the new trust with modified terms. This transfer must be done carefully to ensure that the new trust accurately reflects the intentions of the trustee and beneficiaries.
9. Recordkeeping and Reporting:
   • The trustee must maintain records of the decanting process and provide an accounting to the beneficiaries.

Conclusion

Trust decanting can be a valuable tool for updating and customizing irrevocable trusts to better serve the needs and intentions of the grantor and beneficiaries. However, it should be approached with caution and in compliance with California’s legal requirements to ensure a successful outcome. It is essential to work with an experienced estate planning attorney in Folsom who understands the intricacies of decanting and can guide you through the decanting process, ensuring that it complies with state law and meets the objectives of the trust. If you have questions about trust decanting, contact Thapar Law at 916-579-0605 or send us a message.