Decanting an Irrevocable Trust

What is Decanting?

Decanting an irrevocable trust is the process of pouring assets from an old, outdated trust into a new trust with more favorable terms. Like decanting wine and leaving unwanted sediment at the bottom of the old bottle of wine, the same can be done with a trust to remove unwanted provisions. To steal a golf term, we call it the “Mulligan” of estate planning.

There are 28 states with a decanting statute, but not all are created equal. If the governing law of a trust is located in a state without a decanting statute, you could transfer the situs of the trust to a jurisdiction with a decanting statute. To see a chart that ranks each state and its decanting statue please visit https://www.oshins.com/state-rankings-charts.

decanting Theory

The theory behind decanting an irrevocable trust is that if the trustee has the power to make an outright distribution to a beneficiary, then the trustee should also have the ability to exercise that power to distribute to the beneficiary in further trust (rather than outright).

Why Would you want to decant?

• To update outdated provisions in the trust.
• To change an outright distribution to keep assets in trust for a beneficiary.
• To address changes in beneficiaries’ lives and circumstances.
• To add or remove trustees, or change trustee provisions.
• To fix mistakes or ambiguities made in the drafting of the trust.
• To change a trust that provides for distributions for health, education, maintenance, and support (HEMS) to a fully discretionary trust for better creditor protection.
• To combine or separate trusts for better efficiency.
• To create a power of appointment for estate tax inclusion to get the step-up in basis.

What can you not do?

• Cannot distribute trust assets to non-beneficiaries of the trust.
• Cannot add a beneficiary.
• Generally cannot extend the perpetuity period applicable to the trust. Must be cautious if modifying a GST grandfathered trust so as not to lose GST tax-exempt status.

Why should you use Nevada Law?

One of the biggest advantages of decanting under Nevada law is that that the trustee is not required to notify the beneficiaries of its action to decant. Often, the reason for decanting a trust is sensitive to the parties, and therefore privacy is a key factor in choosing a decanting jurisdiction. IconTrust, like most other corporate trustees, may provide notice to the trust beneficiaries depending on the scenario and the goals for the decanting.

IconTrust's Process to decant

IconTrust would become the trustee of the old trust and trustee of the new trust. The trustee is responsible for the act of decanting the assets from the old trust into the new trust utilizing a decanting document. To accomplish the decanting, IconTrust would charge a $1,000 decanting fee.

Choose ICON

You will want to make sure to work with a trustee that has experience decanting trusts and knows the mechanics and pitfalls to avoid. Decanting is a hot topic and a powerful planning technique to make changes to a trust while still carrying out the original intent of the creator of the trust.

IconTrust is located in Nevada, one of the best states to decant. To take advantage of Nevada’s preferable laws, you will need a trustee in Nevada. IconTrust can meet that requirement for you.

If you have any questions about decanting, please email info@icontrustnv.com or call 702-998-3700.