Decanting an Irrevocable Trust
Posted by D’Marie Kleeman on April 10, 2025
The concept of decanting involves transferring assets from one trust to another with different terms. It allows trustees to update or adjust the terms of an irrevocable trust under certain conditions. Decanting can be a strategic way to modernize an inflexible trust and better serve long-term goals and beneficiaries.
Reasons for Decanting
Flexibility
- Original trusts may lack flexibility to adapt to changing tax laws, family circumstances, or beneficiary needs.
- Decanting can remove outdated provisions, add modern administrative powers, or change the trust's governing law to a more favorable jurisdiction.
Corrections and Protections
- It can correct drafting errors, protect assets from creditors, or introduce special needs provisions for a disabled beneficiary.
State Laws and Trustee Authority
State Variations
- Decanting laws vary significantly from state to state, affecting estate planning goals.
- Trustees should familiarize themselves with their state's rules and consider moving the trust to a state with favorable decanting laws.
Trustee's Power
- Decanting authority is derived from a trustee's power to make discretionary distributions.
- Trustees should explore states offering the greatest flexibility to achieve their goals.
Beneficiary Considerations
Notification and Consent
- Beneficiaries' consent is generally not required for decanting, and notification requirements vary by state.
- Notifying beneficiaries, even if not required, can help prevent future disputes.
Complexity and Legal Guidance
Approach with Caution
- Decanting an irrevocable trust is complex and should be approached with careful legal and tax guidance.
- It can be a strategic way to modernize an inflexible trust and better serve long-term goals and beneficiaries.
Decanting an irrevocable trust is complex and should be approached with careful legal and tax guidance. It can be a strategic way to modernize an inflexible trust and better serve long-term goals and beneficiaries. We are here to provide the necessary guidance and services to ensure a smooth and effective decanting process.
for more information
D’Marie is a tax principal with experience in all areas of U.S. Federal and New York State taxation. While specializing in performing tax services for individuals, trusts, and estates, she also provides tax services to commercial businesses, real estate-related businesses, privately held businesses, and private foundations.