While most wines are supposed to get better as they age, the same does not hold true for certain irrevocable trusts. For example, you could be the beneficiary of a trust created by your grandparents decades ago and that trust no longer works as they envisioned. Perhaps you created your irrevocable trust a few years ago and it does not make sense anymore. A question that could be asked by a wine connoisseur is this: Can you fix an irrevocable trust that has gone from a fine wine to a vinegar? In some circumstances, the answer can be yes. It simply requires “decanting” the old into the new.
How to “Decant” a Trust
If you love wine, you know that if you want to “decant” an old wine you simply pour that old wine into a new container. This allows the flavors and aromas of the old wine to be opened up. When this concept is applied to irrevocable trusts, you could “decant” and old trust by transferring the property of an old trust into a new trust. The new trust would be established under terms that were more favorable to the beneficiary.
When is This a Good Idea?
“Decanting” a trust could work in a great number of situations. These situations could include the following:
- If you want to expand or to limit the trustee’s power
- If you need to convert an old trust that will terminate at a certain age of the beneficiary
- If you want to merge multiple trusts that are similar into one trust with the same beneficiary
- If you need to clarify uncertain provisions or mistakes in the old trust
- If you want to protect a beneficiary with special needs
- If you need to expand, remove, or modify powers of appointment in the old trust
- If you wish to take a single existing trust and create multiple new trusts to address the changing needs of multiple beneficiaries
- If you need to change an old trust to a state that is more favorable to the beneficiary
- If you need to modify the provisions regarding who may serve as a trustee
- If you need to change an old trust in order to protect its assets from the creditors of a beneficiary
How Can a Trust be “Decanted”?
A trust that is being decanted must follow the laws of the particular state where the trust is maintained. It must also follow specific agreements within the trust regarding how a trust may be decanted.
If the trust can legally be decanted, the trustee should then create the new trust with the new provisions that are desired. After the new trust is created, the trustee will transfer some or all of the assets from the old trust into the new one. If any assets are left in the old trust, they will be administered according to the terms of the old trust. If a trust is left empty, it will simply be terminated.
Decanting can be very helpful in the right situation, but it is definitely not the only manner in which an old irrevocable trust may be fixed. Please contact us and let us help you determine which solution is the best for your scenario. However, if your trust does not work like it once did, please give us a call.