Today, many estate plans contain an irrevocable trust that will continue for the benefit of a spouse’s lifetime and then continue for the benefit of several generations. Because trusts like these are designed to span multiple decades, it is important that they include trust decanting provisions to address changes in circumstances, beneficiaries, and governing laws.
What is trust decanting?
When a trust is decanted, the accounts and property from the existing trust are removed and distributed into a new trust that has different and more favorable terms.
When should a trust be decanted?
Provisions for trust decanting should be included in trusts that are intended to last decades into the future. Decanting in Alabama can do the following:
- Clarify ambiguities or drafting errors in the trust agreement. As trust beneficiaries die and younger generations become the new heirs, vague provisions or outright mistakes in the original trust agreement may become apparent. Decanting can be used to correct these problems.
- Provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits. Decanting can be used to turn a trust in which the beneficiary is entitled to money into a full supplemental needs trust.
- Protect the trust’s accounts and property from the beneficiary’s creditors. A trust that gives the beneficiary control or access to their inheritance puts that inheritance at risk of being snatched by the beneficiary’s creditors, rapidly depleting the inheritance if the beneficiary is sued. Decanting can be used to convert a trust without any asset protection features into a full discretionary trust that the beneficiary’s creditors will not be able to reach.
- Merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts that have similar terms. Decanting can be used to combine these trusts into one trust that will reduce administrative costs and oversight. On the other hand, a single trust that has multiple beneficiaries with differing needs can be decanted into separate trusts tailored to each individual beneficiary.
- Change the governing law or situs to a different state. Changes in state and federal laws can adversely affect the administration and taxation of a multigenerational trust. Decanting can be used to take a trust that is governed by laws that have become unfavorable and convert it into a trust that is governed by different and more advantageous laws.
Final Thoughts on Trust Decanting
Including trust decanting provisions in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. This will help ensure that the trust agreement has the flexibility necessary to avoid court intervention to fix a trust that no longer makes practical or economic sense.
If you are interested in adding trust decanting provisions to your trust or would like to have the decanting provisions of your trust reviewed, please call our office.
For many business owners in Foley, AL, Gulf Shores, AL, and surrounding areas, their business is one of the most valuable and important assets they own. When it is time to sit down and create an estate plan, it is critical that business owners plan for their business just as they would plan for their […]
There is a lot riding on your small business in Foley, AL, Gulf Shores, AL, and beyond. You have invested your money, time, and sweat equity to build a company that will be successful for years to come. Even if you make all the right business moves, unexpected costs can arise at any time. Accidents, […]
Starting a business requires a great deal of planning and execution. Exiting from your small business in Foley, AL, Gulf Shores, AL, or any other location should entail a similar level of forethought and preparation. Nevertheless, some surveys indicate that nearly half of business owners have no exit strategy. After years of expanding your business, […]
Fewer people are creating estate plans today than in years past. Research shows that in 2024, less than one-third of Americans report having a will. Every adult—whether they are 19 or 99—should have a will at a minimum. Many people in Foley, AL, Gulf Shores, AL, and beyond can also benefit from estate planning documents […]
