Decanting: How to Fix a Trust That Is Not Getting Better with Age

In the previous blog, we wrote about amending trusts.  The next two blogs will delve more into the why, when, and how of decanting.  Many people do not know that decanting a trust is even possible and think when you mention decanting, your mind goes immediately to wine.  While many wines improve with age, the same cannot be said for some irrevocable trusts.

Maybe you are the beneficiary of a trust created by your great-grandfather over 70 years ago, and that trust no longer makes sense. Or maybe you created an irrevocable trust over 20 years ago, and it no longer makes sense for your current situation. Wine connoisseurs may wonder if there is any way to fix an irrevocable trust that has turned from a fine wine into vinegar. Under certain circumstances, the answer is yes—by decanting the old, broken trust into a brand new one.

What Does It Mean to Decant a Trust?

Wine lovers know that the term decant means to pour wine from one container into another to open the aromas and flavors of the wine. In irrevocable trusts, decanting refers to transferring some or all the accounts and property owned by an existing trust into a brand-new trust with different and more favorable terms.

When Does It Make Sense to Decant a Trust?

Decanting a trust makes sense under myriad circumstances, including when you would like to make these changes:

• Tweak the trustee provisions to clarify who can or cannot serve as trustee
• Expand or limit the trustee’s powers
• Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust
• Change a trust in which a beneficiary is entitled to receive their inheritance at a certain point or for certain purposes into a fully discretionary trust in which the trustee decides when money will be given to the beneficiary to protect the trust’s accounts and property from the beneficiary’s creditors
• Clarify ambiguous provisions or drafting errors in the existing trust
• Change the governing law or trust situs to a less taxing or more beneficiary-friendly state
• Merge similar trusts into a single trust for the same beneficiary
• Create separate trusts from a single trust to address the differing needs of multiple beneficiaries
• Provide for and protect a special needs beneficiary

What Is the Process for Decanting a Trust?

A state’s statute or case law can allow decanting. Virginia joined 14 other states with decanting statutes several years ago and the Maryland legislature passed the law in 2023 to allow for decanting.  Additionally, the trust agreement may contain specific instructions regarding when or how a trust may be decanted. Once it is determined that a trust can and should be decanted, the next step is for the trustee to create a new trust agreement with the desired provisions. The trustee must then transfer some or all the accounts and property from the existing trust into the new trust. Any accounts or property remaining in the existing trust will continue to be administered under its terms, and the empty trust will be terminated. A decanting power allows a trustee generally with or without the approval of a court or even the beneficiaries to assign the income or principal or both to a second trust.

Life is constantly changing and often trusts written with the best intention no longer make sense to the trustee or beneficiaries.   Should this sound familiar, and beneficiaries agree, speak with an estate attorney to review your options.  The attorneys at Altman & Associates stand ready to advise clients about planning, tax, and fiduciary matters. Call the office at 301-468-3220 or go to the website at altmanassociates.net to learn more.

Contributed by Elizabeth Glines