California recently passed and enacted the Uniform Trust Decanting Act, which allows trustors and trustees to modify the terms of a trust without court oversight or the approval of the trust’s beneficiaries. What it means to decant a trust | California Estate Planning Lawyer Kavesh Minor and Otis

Decanting a Trust In California

People often use the term “decanting” in reference to wine. If you were to decant a bottle of wine, you would pour it from its bottle into another vessel, exposing it to oxygen and leaving behind any residual sediment. Trusts are often compared to containers or vessels. So, when somebody decants a trust, they shift assets from its possession into another, separate trust.

People usually decant trusts because they want to alter the trust’s holdings or the terms of asset distribution but are prevented from doing so per the original trust’s terms. 

Decantable Trusts

Trust decanting is used to effectively alter trusts that have certain irrevocable elements. You could decant both revocable and irrevocable trusts.

Revocable Trusts

Most revocable trusts can be altered without the creation of a new, separate trust. However, a revocable trust could be decanted if the trust documents specify that revocation requires the consent of a trustee or another interested individual or party.

Irrevocable Trusts

By definition, and with few exceptions, irrevocable trusts cannot be changed or revoked. However, they can be decanted by pouring the irrevocable trust’s assets into a new trust with altered terms. While an irrevocable trust can be decanted without the beneficiaries’ consent and court oversight, trustees are still subject to some limitations. The trustee can only reallocate assets to the extent they are allowed under the terms of the original trust, and they cannot strike or add beneficiaries from the new trust. Any trustee intending to decant must provide a 60-day notice to the grantor, beneficiaries, and any other interested parties.

However, not all trusts can be decanted:

  • If your trust was established before the enactment of the Uniform Trust Decanting Act in January 2019, it may not be modifiable.
  • If your trust includes a provision expressly prohibiting decanting or decanting-type procedures, it may not be modifiable.
  • If you created a charitable trust or other type of protected trust, it cannot be changed under the Uniform Trust Decanting Act. 

Terms That a Trustee Can Modify

If a grantor or trustee wants to exercise decanting power, they must:

  • Exercise their fiduciary duty, meaning that any change must be in the best interest of both the trust and its beneficiaries
  • Honor the intent of the original trust, insofar as a decanting trustee cannot impose any radical alterations to the original trust’s structure and composition

You could use decanting to make the following sorts of changes to a pre-established trust:

  • Eliminate current beneficiaries
  • Designate a current beneficiary as a remainder beneficiary
  • Designate a remainder beneficiary as a current beneficiary
  • Change certain standards for asset distribution
  • Modify trust appointments
  • Alter trustee provisions and role designations

Terms That a Trustee Cannot Modify

While trustees may have the power to decant a trust, they cannot decant a trust to:

  • Increase their compensation or the compensation of another trustee
  • Exempt a trustee from legal liability in the event of litigation or breach of fiduciary duty
  • Grant a third party the authority to remove or replace an existing trustee

How to Decant a Trust In California

If you have established a decantable California trust, you do not need to inform the courts of your intent to decant.

However, you must still provide 60 days’ notice to:

  • The trust’s settlor, if you are not the settlor
  • Each qualified beneficiary
  • Any individual who has an exercisable power of appointment over the original trust
  • Each person with the power to remove or replace current trustees
  • All the trustees of the original trust
  • All the trustees of the new trust
  • The Office of the Attorney General of California, if the trust contains certain charitable elements

Your notice must comply with the Uniform Trust Decanting Act’s other provisions. You must, for instance, include specific language informing the recipients of their right to contest the decanting.

You should always contact a California estate planning attorney before decanting a trust. If you do not have an experienced professional’s guidance, you could inadvertently violate the Uniform Trust Decanting Act’s notification requirements, as well as other decanting statutes that have been recently introduced.

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Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.