If you have created an irrevocable trust, you probably know that the trust cannot be changed after you make it, which is why it is called irrevocable. However, there are some situations in which the terms of an irrevocable trust can be modified, one of which is known as decanting. Though the decanting process does not actually alter the terms of the irrevocable trust, it effectively allows the trust property to be managed under new terms. Let’s take a look at what decanting is.
- The Decanting Process: In some situations, a trustee of an irrevocable trust can take the trust property and transfer it over to a new trust that has different terms than the original. This is known as decanting. In a practical sense, it allows the trustee to alter the terms of the original trust, even though he or she is really only transferring trust property from the old trust to the new one.
- Trustees and Beneficiaries: The trustee of an irrevocable trust cannot transfer the trust property to a new trust unless that trust has the same beneficiaries as the original one. Essentially, the trustee must act in accordance with the intentions of the original trust and ensure that the new trust still benefits the same beneficiaries.
- Court Approval: Only nine states, including New York, have statutes that allow a trustee to perform a decanting without court approval. Otherwise, the trustee will have to go before a court and ask it to approve the process. Talk to your estate planning lawyer about decanting and the laws that apply.