Trust Decanting Attorneys
Decanting is the transfer of assets from an existing irrevocable trust into a new trust with different terms, done by the trustee under a power to distribute principal rather than by amendment. It is one of the few ways to change an irrevocable trust without the consent of every beneficiary or a court order, and in the right circumstances it can correct a drafting problem, modernize an old instrument, add protections a beneficiary now needs, or move the trust to a state whose governing law better suits the trust’s needs.
Whether decanting is available, and how far it can go, depends on the trust’s terms and on the state whose law governs it. New York and Connecticut have decanting statutes that set out what a trustee may do and what notice must be given. New Jersey has no statute, and decanting there rests on the trust instrument and case law. A trustee who decants without authority, or beyond it, has breached the trust, so authority must be reviewed before any transfer.
Milvidskiy Law Group P.C. advises trustees on whether decanting is authorized and advisable, drafts the new trust and the instrument of exercise, gives the required notices, and, where a court’s involvement is prudent, obtains its approval. We also represent beneficiaries who receive notice of a proposed decanting and want it reviewed.
Key Takeaways:
- Decanting is a trustee’s act under a power to distribute principal. The broader the trustee’s discretion over principal, the more the new trust may change; a trustee with limited discretion may modernize administrative terms but generally may not change who benefits.
- New York and Connecticut permit decanting by statute without court approval, on written notice to the settlor, the beneficiaries, and others with an interest, with a waiting period before the exercise takes effect. New Jersey has no decanting statute, so authority must come from the instrument, and court approval is often the prudent course.
- Decanting cannot be used to reduce a beneficiary’s fixed rights, to relieve the trustee of liability, or to jeopardize the trust’s tax treatment, and it remains subject to the trustee’s fiduciary duties.
What Decanting Can Accomplish
- Correct drafting errors and ambiguities that would otherwise require a court construction.
- Update administrative provisions: trustee succession, investment powers, trust protector provisions, and directed trust arrangements that an older instrument lacks.
- Add protection for a beneficiary who has developed a disability, a creditor problem, an addiction, or a failing marriage, by converting an outright distribution into a discretionary or special needs trust.
- Extend the trust’s term so that assets remain protected for a beneficiary or for descendants rather than being paid out at a set age.
- Change the governing law or situs to a state with more favorable trust, tax, or creditor rules.
- Divide one trust into several, or combine several into one, where beneficiaries’ interests have diverged or administration has become inefficient.
- Adjust tax characteristics, such as grantor trust status or provisions affecting generation-skipping transfer tax, within the limits the statutes and the tax law allow.
Authority by State
New York
New York’s statute distinguishes between a trustee with unlimited discretion to invade principal and one with limited discretion. A trustee with unlimited discretion may appoint the principal to a new trust that changes the beneficiaries, grants new powers of appointment, extends the term, and alters the distribution standards, subject to the statute’s limits. A trustee with limited discretion may decant, but the new trust must keep the same current, successor, and remainder beneficiaries and the same distribution language, and may extend the term only on defined conditions.
The trustee must deliver the instrument of exercise and both trust documents to the settlor if living, to anyone with a power to remove or replace the trustee, and to all interested persons, and the exercise takes effect thirty days after service unless the recipients consent in writing to an earlier date. Court approval is not required, though the trustee may seek it.
The new trust may not reduce a beneficiary’s mandatory income or principal rights, annuity, or withdrawal right once in effect, eliminate a removal power, reduce the trustee’s liability, jeopardize marital, charitable, annual exclusion, or generation-skipping benefits, or change the trustee’s compensation.
Connecticut
Connecticut adopted the Uniform Trust Decanting Act, which applies to irrevocable trusts and to trusts revocable only with the consent of the trustee or an adverse party. A trustee with expanded distributive discretion over principal may decant broadly, while a trustee with only limited discretion is confined to changes that do not alter the beneficial interests.
The trustee must give written notice at least sixty days before the exercise to each living settlor, each qualified beneficiary, holders of presently exercisable powers of appointment, anyone with power to remove or replace the trustee, the other fiduciaries of both trusts, and, for certain trusts, the Attorney General and the Department of Social Services; the notice must state how and when the power will be exercised and attach both trust instruments.
Court approval is not required, but the trustee, a person entitled to notice, or a beneficiary may petition the Probate Court for instructions, for approval of a proposed exercise, or for a determination that an attempted exercise was ineffective.
New Jersey
New Jersey has not enacted a decanting statute. A New Jersey trustee’s authority to decant comes from the trust instrument itself, which may expressly grant it, or from the trustee’s discretionary power to distribute principal as interpreted under New Jersey case law, which has recognized a trustee’s ability to distribute in further trust where the discretion is broad.
Because the boundaries are less defined, we often recommend that a New Jersey decanting be accompanied by the consent of the beneficiaries or by court approval, and we compare it with the consent-based trust modification that New Jersey’s trust code provides, under which a trustee and all beneficiaries, or the court where not all consent, may modify or terminate an irrevocable trust if the change is not inconsistent with a material purpose.
Limits and Risks
Decanting is an exercise of fiduciary power, and the trustee remains bound by the duties of loyalty and impartiality. A decanting that favors one beneficiary at another’s expense, that benefits the trustee, or that departs from the settlor’s evident purpose invites a challenge even where the statute’s mechanics were followed.
The tax consequences require care: a decanting that shifts beneficial interests can be a taxable gift by a beneficiary, can affect the trust’s generation-skipping exemption, and can change grantor trust status, and the statutes forbid changes that would jeopardize marital or charitable deductions. A decanting of a trust holding a beneficiary’s own assets, such as a first-party special needs trust, is restricted, and Connecticut requires notice to the state for those trusts.
And the beneficiaries who receive notice are entitled to object; a decanting done over their objection without court approval may be litigated later. For these reasons we treat the notice period as a genuine opportunity for review rather than a formality, and we recommend court approval where the changes are significant or the beneficiaries are not aligned.
Decanting Compared With the Alternatives
Decanting is one of several ways to change an irrevocable trust. A trust protector with amendment powers can make many of the same changes more simply if the instrument provides one. A consent modification requires the beneficiaries’ agreement but can reach terms a decanting cannot. A judicial modification is available where circumstances have changed in ways the settlor did not anticipate. A change of trustee may solve a problem that looked like a drafting problem. And where the trust has outlived its purpose, termination may be the answer. We evaluate the options against the trust’s terms, the governing law, the tax position, and the family before recommending one.
What Our Decanting Service Includes
- Review of the trust instrument and governing law to determine whether the trustee has decanting authority and how broad it is.
- Analysis of the tax, creditor, and benefits consequences of the proposed changes, in coordination with the trust’s accountant.
- Drafting of the new trust and the instrument exercising the decanting power.
- Preparation and service of the statutory notices, and management of the waiting period.
- Petitions for instructions or approval where court involvement is prudent, and representation of trustees in any resulting proceeding.
- Representation of beneficiaries who receive notice of a proposed decanting, including review, negotiation, and, where warranted, objection.
- Retitling of assets to the new trust and the transition to its administration.
When Decanting Is Not the Right Tool
Decanting cannot give a beneficiary more than the trustee had discretion to give, cannot take away a fixed right a beneficiary already holds, and cannot be used by a trustee to escape accountability for past administration. It is the wrong tool where the trustee lacks discretion over principal, where the change would shift value among beneficiaries in a way the settlor would not have sanctioned, where the tax cost outweighs the benefit, or where a simpler route, such as a protector’s amendment or a consent modification, is available. In those situations we recommend the alternative.
Schedule a Consultation About Decanting a Trust
If you are a trustee of an irrevocable trust whose terms no longer serve the beneficiaries, or a beneficiary who has received notice of a proposed decanting, bring the trust instrument, any amendments, and the most recent account statements. Our attorneys practice in New York, New Jersey, and Connecticut. Contact Milvidskiy Law Group P.C. to schedule a consultation.
This page is provided for general informational purposes only and does not constitute legal advice. Laws differ by state and change over time. For advice about your situation, consult a qualified attorney.
Frequently Asked Questions
What is trust decanting?
Decanting is a trustee’s transfer of assets from an existing irrevocable trust into a new trust with different terms, exercised under the trustee’s power to distribute principal. It is a way to change an irrevocable trust without amending it and, in states with decanting statutes, without the consent of every beneficiary or a court order.
Can any irrevocable trust be decanted?
No. The trustee must have discretion to distribute principal, and the scope of that discretion controls what the new trust may change. The trust instrument may also prohibit or restrict decanting. In New Jersey, which has no decanting statute, authority must come from the instrument itself or from case law interpreting the trustee’s discretionary powers.
Is court approval required to decant a trust?
Not in New York or Connecticut, whose statutes allow a trustee to decant on written notice to the required persons after a waiting period, thirty days in New York and sixty days in Connecticut. A trustee may nonetheless ask the court for instructions or approval, and we often recommend it where the changes are significant. In New Jersey, court approval or beneficiary consent is frequently the prudent course.
Who must receive notice of a decanting?
In New York, the settlor if living, anyone with power to remove or replace the trustee, and all interested persons, who receive the instrument of exercise and both trust documents. In Connecticut, each living settlor, each qualified beneficiary, holders of presently exercisable powers of appointment, anyone who can remove or replace the trustee, the other fiduciaries of both trusts, and, for certain trusts, the Attorney General and the Department of Social Services.
Can decanting change who the beneficiaries are?
Only where the trustee has broad discretion over principal. In New York a trustee with unlimited discretion may exclude current beneficiaries and change remainder beneficiaries, subject to the statute’s limits, while a trustee with limited discretion must keep the same beneficiaries and distribution terms. Connecticut draws the same distinction between expanded and limited distributive discretion. Beneficiaries with fixed rights keep them.
Can decanting be used to add a special needs trust for a beneficiary with a disability?
Often, yes. Converting an outright or support distribution into a discretionary special needs trust for a beneficiary who has become disabled is one of the most common and least controversial uses of decanting, because it preserves the beneficiary’s eligibility for benefits without reducing what the trust holds for them. Statutory conditions apply, and the drafting must satisfy the benefits rules.
What are the tax risks of decanting?
A decanting that shifts beneficial interests can be treated as a taxable gift by a beneficiary, can affect the trust’s generation-skipping transfer tax exemption, and can change the trust’s grantor or nongrantor status. The statutes forbid changes that would jeopardize marital, charitable, or annual exclusion benefits. We analyze the tax position with the trust’s accountant before any decanting.
Can a beneficiary object to a decanting?
Yes. The notice period exists so that beneficiaries can review the proposal, and a beneficiary who believes the decanting breaches the trustee’s duties or exceeds the trustee’s authority may petition the court to determine that the exercise is improper. A decanting completed over objection without court approval may be litigated afterward.
How is decanting different from modifying a trust?
Decanting is a trustee’s act under a distribution power and does not require beneficiary consent. Modification, whether by consent of the trustee and beneficiaries or by court order, changes the existing trust rather than creating a new one and can reach terms a decanting cannot, such as fixed rights. Which is better depends on the trust’s terms, the state, the change wanted, and whether the beneficiaries agree.
Can a trust be decanted to move it to another state?
Yes, where the trustee has the necessary discretion. Changing the governing law and situs to a state with more favorable trust, tax, or creditor rules is a common purpose of decanting. The new trust must satisfy the new state’s requirements for a trustee or administration there, and the tax consequences of the move are reviewed in advance.
