Decanting a Trust: Why would you ever do that?

Decanting a Trust: Why would you ever do that?

When a trust is made and written out, it is often assumed that everything is taken care of. The rules are in place and now probate can be avoided for the assets contained within the trust. But what happens if there is a mistake in the trust? What do you do if it is found out that the way the trust is written means that the distributions will not be effectively carried out. Well, if the trust-maker is still alive, this is a pretty straightforward fix, the trust-maker makes an appointment with their attorney, explains what is wrong, a revision is drafted and then signed off on by the trust-maker. But what do you if the trust-maker has already passed on and a mistake is discovered at a later time? The answer is that you decant the trust.

Decanting a trust is a relatively straightforward procedure and offers a valuable method of revision to trusts should the trust-maker pass on while leaving an error unresolved in the trust. For example, let’s say that Mary Sue has a trust and wants to ensure that the funds put into her trust are paid out directly to her heirs upon her death. However, Mary Sue didn’t read the trust language very carefully when drafting.  In this example, Mary Sue did not realize that the way the trust was written means that all the funds must be paid out to her heirs in small increments for a long period of time or for the duration of their lives. Perhaps it was written this way because Mary did not have much money when she made the trust and thus felt it was a good idea to stretch it out. But what would happen if Mary obtained a large sum of money after this provision was written? If Mary didn’t anticipate having this amount of money and never amended her trust, it could mean that some of her money won’t be accessible by her heirs due to how her trust is worded.

Situations like this are why trust decanting is very valuable. If Mary were to die and her trust still had these instructions it could potentially mean that her heirs would be unable to access the full extent of her assets due to the rules stating that it must be paid in small increments over their lives. Mary’s appointed trustee, could decant the trust. What this would mean would be that Mary’s trustee would either create an entirely new trust with new terms, or modify the original trust with new terms. These changes are able to be made so long as there are no objections by the heirs of the trust. Changes that can be made must relate to HOW the money is distributed, not to who the money goes or how much is distributed to each person. The point of trust decanting is to allow for the effective distribution of the money which also complies with the wishes of the deceased. It is not meant to overrule the deceased, re-assign assets, or make changes to the amounts received by heirs.

Trust Decanting is a valuable tool that trustees can make use of should they find that the trusts they are administering have not been written effectively, or contain mistakes which make distribution cumbersome and ineffective. Changes like this do require a very specific set of steps. The basic steps are contained in another post on our website. However, given the challenges and potential liability a trustee can face if this process is done incorrectly, it is very important to involve an attorney if you are considering making use of this option.

If you have trust you are administering that you would like to potentially decant, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. Additionally, if you have a trust document drafted which you want to ensure is written correctly and won’t be in need of decanting, we would be happy to review it for you.  We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning.