Decanting Trusts: Sometimes You Can Change the Terms of an Existing Trust

Sometimes, the terms of an irrevocable trust (one that cannot be amended or revoked) were appropriate at the time the trust was created, but subsequent events or circumstances make the terms of the old trust impractical, unwanted, or obsolete. So, what can be done?

Sometimes, the terms of a trust permit the trustee to make discretionary distributions of principal to one or more beneficiaries in the trustee’s sole and absolute discretion, including to other trusts created for the benefit of one or more of the beneficiaries. This type of provision allows the trustee to invade the trust and “pour” the assets into a new trust with different terms. If the trust doesn’t permit this type of invasion of principal, one must look to New York law.

In New York, we have our “decanting” law. Just like decanting wine (which is more fun, of course), under New York law, a Trustee can “pour” the assets of an existing trust into a newly created trust which has new terms, even if the existing trust does not permit an invasion for the beneficiaries into a new trust. The types of changes that can be made depend on the terms of the old trust.

There are many reasons to decant a trust. You may want to lengthen the term of a trust, change trustees, remove beneficiaries, modify the distribution ages of the beneficiaries, add special needs trust protections, add or change a power of appointment, improve or correct tax consequences and correct mistakes in the old trust. For instance, Grandma’s old trust may provide for a lump sum payment to Junior when he reaches age 30. Now, Junior is approaching 30 and has a severe substance abuse problem. The trustee and the other beneficiaries are worried that Junior is going to spend the money like crazy, hurting himself as he goes. The trustee can decant the old trust into a new trust that extends the term of the trust to an older age or even for Junior’s lifetime, thus protecting Junior. With some trusts, decanting can even remove beneficiaries.

If you or a relative have created a trust that is now outdated, or you are the Trustee of an old trust, it is wise to review the terms of the trust in light of any changes in circumstance. If you determine that the terms of the trust should be changed, discuss with your estate planning lawyer whether decanting the old trust should be considered.