WHY DECANTING MAY BE BEST WHEN ALTERING A TRUST
Nov. 3, 2017
California residents may have a need to either cancel or make changes to an irrevocable trust. While it may be more difficult to do so compared to a revocable trust, there is a process that allows that to happen. It is called decanting, and it involves creating a second trust and pouring assets into it from the original trust. Once the asses are inside of the second trust, its terms will govern how assets are to be treated.
This may be beneficial if payments are supposed to be made to someone who isn't able to handle it. This may be true if that beneficiary has a drug problem or has recently gone through a bankruptcy. In some cases, it may also be worthwhile to decant if an asset has grown significantly in value. Typically, the new trust that is created will be a dynasty trust with a discretionary payment schedule.
Decanting may be easier than trust modification or reformation because it may be possible to make changes without having to notify beneficiaries. A judge will need to approve the action, however, because unlike many other states, California has not adopted the Uniform Trust Decanting Act.
After an irrevocable trust is created, decisions related to administering the trust must generally be made in the best interest of the beneficiaries. This may be true whether an asset is earmarked for those alive today or for future generations. The trustee may want to meet with an attorney who has relevant experience if there are any questions regarding aspects of trust administration.