United States

Consider decanting a solution for trusts with changed circumstances

No longer just a strategy to fix a broken trust


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Decanting a trust involves a metaphorical pouring of trust assets from one trust to another. This article addresses the mechanics of decanting and provides guidance on how not to spill or otherwise compromise the trust assets.

Estate planning advisers are increasingly using decanting to deal with changes in circumstances and tax laws not anticipated by the drafters of the original trust agreements.

Decanting statutes have proliferated over the past three years with a need to update trusts and to avoid clogging the courts with amicable petitions to fix broken trusts. As a result, 21 states now have decanting statutes, and while the details vary greatly among them, the common premise is the same: a trustee's discretion to make distributions includes the lesser power to move the trust assets to a second trust.

There continues to be some ambiguity and complexity around the federal tax implications of decanting, and even after seeking and receiving comments on decanting from national legal and tax groups, the IRS omitted decanting from its 2013-2014 Priority Guidance Plan, thus indicating that it would not issue a revenue ruling on the tax aspects of decanting this year.

Author Audrey Young concludes in her article, The Mechanics of Decanting, first published in The Tax Adviser, that without formal rulings from the IRS, it remains unclear how the IRS will evaluate decantings that alter the beneficial interests created under the original trust.