What Is Trust Decanting and When Should You Consider It?

If you’ve ever set up an irrevocable trust, you probably know how complicated they can be. The grantor sets out specific rules to protect assets and provide for beneficiaries. But life rarely sticks to the script. Laws change, families evolve, and what worked before can grow outdated or even problematic. So, what’s your next move when a trust no longer fits? Enter trust decanting. If you’re wondering what trust decanting is and when you should consider it, you’re in the right place to discover a practical solution for adapting old trusts to new realities.

Trust decanting gives the trustee the ability to “pour” assets from an existing trust into a new, more flexible one. Imagine decanting wine—you transfer it from the old bottle to a decanter, leaving behind the sediment. Similarly, with trusts, this process lets you move assets out of an outdated structure and into a new one with better terms, while still honoring the original intent of the trust. In many situations, decanting can solve major headaches, often without involving the courts.

How Does the Trust Decanting Process Work?

The process begins with the person or institution managing the trust’s assets. If changes are needed, the trustee drafts a new trust with the necessary updates, then transfers assets from the original trust into the new one.

Procedures for decanting vary by state. Some states have clear statutes addressing decanting, while others depend on legal precedents. Regardless of location, the trustee must give beneficiaries notice and a chance to review changes. Any new trust created through decanting must continue to protect the beneficiaries’ interests and reflect the grantor’s original wishes.

Why Would a Trustee Need To Decant a Trust?

There are several common reasons to consider decanting, all aimed at making a trust work better for everyone involved. For instance, an old trust document may restrict how assets can be invested or lack language for a beneficiary with special needs.

Decanting lets the trustee correct administrative inefficiencies or broaden investment options. It’s also handy for merging multiple trusts, splitting one trust among several beneficiaries, or updating the law governing a trust to a more favorable state. Decanting helps align the trust with today’s needs and future possibilities.

When Is It Appropriate To Correct Errors in a Trust?

Mistakes happen, even in the best-drafted trusts. A typo in a name or an unclear clause can trigger confusion or disputes down the line. Decanting offers a streamlined way to fix errors or clarify vague language without going to court.

By moving assets to a new trust with corrected or clearer terms, the trustee can ensure the original wishes are honored and minimize potential conflicts in the future.

How Can Decanting Address Changes in the Law?

Tax laws and property regulations rarely stay the same for long. If a trust is multiple years old, it might not reflect current estate tax rules or other legal requirements. Holding onto the old terms could wind up costing beneficiaries more than expected.

Trust decanting lets trustees update provisions to take advantage of new laws, like a higher estate tax exemption or tax savings strategies that weren’t available before. It helps keep the trust working as intended, even as the legal landscape shifts.

Can Decanting Help With Changing Family Situations?

Families grow and change, and trusts sometimes need to adjust along with them. Maybe a beneficiary is going through a divorce, struggles with substance abuse, or now requires special needs planning. The original trust might not provide enough protection in these scenarios.

Decanting can help by allowing adjustments such as:

• Adding spendthrift provisions to shield assets from creditors.

• Creating a supplemental needs trust for a beneficiary with a disability, so they can still qualify for benefits.

• Updating distribution standards to reflect changes in beneficiaries’ circumstances.

What Are the Benefits of Adding Flexibility to a Trust?

Many older trusts follow strict schedules, requiring distributions at specific ages, whether they are ready or not. But just because a beneficiary has turned 25 doesn’t mean they’re prepared for a large inheritance.

Through decanting, the trustee can build in more flexible options, such as a power of appointment. This gives beneficiaries some say over who receives the remaining trust assets. Trustees can also modify how and when distributions are made, better protecting assets so they last through life’s twists and turns.

How Can Decanting Improve Trust Administration?

Outdated administrative terms can make a trust harder to manage. For example, maybe the trust requires using a specific corporate trustee that no longer exists, or it doesn’t let the trustee hire needed financial advisors.

Through decanting, trustees can improve a trust’s operating instructions. They might add powers to delegate decisions or provide for the appointment and removal of co-trustees. This streamlines trust management, helps to cut costs, and improves results for beneficiaries.

Can You Modify Trustee Provisions Through Decanting?

Trustee succession is vital for long-term trusts, but old documents don’t always provide workable solutions. If a named successor is unavailable or unqualified, or there’s no process for removing an underperforming trustee, problems can arise.

With decanting, trustees can create new documents that set out clear rules for successor trustees and removal procedures. This keeps management seamless year after year. Since these changes are critical, always handle them with advice from a trust attorney. The right legal expertise ensures compliance with state laws and that any updated provisions truly protect all parties involved.

Are There Risks or Limitations To Trust Decanting?

While it’s a valuable tool, decanting comes with limits. Trustees must act in the best interests of all beneficiaries and can’t reduce fixed rights or ignore the grantor’s core intentions. Some states have less certainty around decanting laws, leading to potential legal gray areas.

Tax implications are another consideration. The IRS hasn’t released definitive rules about the tax treatment of trust decanting, so there’s a risk of triggering unwanted taxes if you mishandle the process. Weighing the benefits and risks—and consulting a legal professional—is essential.

Should You Consider Decanting Your Trust?

If your trust no longer works as planned, due to changing laws, life events, or outdated terms, trust decanting may offer the solution. It lets you adapt and future-proof your trust while avoiding court battles or unintended consequences.

Before taking action, consult with the beneficiaries and qualified legal counsel to walk through your options. Understanding what trust decanting is and when you should consider it is the first step toward keeping your trust strong, relevant, and effective. If you’re looking for a trust attorney in Vancouver, Washington, to help you with your trust, contact us today. With the right advice, you can confidently use decanting to preserve your legacy for years to come.