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What does it mean to decant a trust?

When a testator goes through the trouble of setting up a trust for their heirs, the odds are high that they had some specific goals in mind. The court generally doesn’t want to interfere with those goals – but mistakes can happen, laws can change and the need for flexibility can become more apparent with time.

That’s where trust decanting comes into play. Decanting a trust is the terminology used to describe the process of pouring assets out of one irrevocable trust into another that has more favorable terms or corrects old errors. In essence, this allows a “broken” trust to be fixed without thwarting its original purposes. Illinois is one of the numerous states that permits this to happen.

What are some good reasons to decant a trust?

The reasons for decanting a trust can be as varied as the trusts themselves, but here are a few of the most common reasons:

  • There have been unforeseen changes in the personal circumstances of a beneficiary that now frustrate the trust’s clearly intended purpose.
  • The beneficiaries hope to amend the terms of the trust or eliminate “spendthrift” provisions that are clearly outdated or overly restrictive.
  • The tax laws have changed and amending the trust in a certain way would protect the assets from unnecessary state, federal or local tax liabilities.
  • There is some financial advantage to changing the governing jurisdiction of the trust by moving its formation documents from one state to another.
  • There were drafting errors in the trust documents that have created confusion or have the potential to do so in the future, such as incorrect dates, misspelled names or ambiguous language.
  • The beneficiaries hope to adjust the powers of the trustee or create more flexibility within the trust so that it’s responsive to their needs.

Trust decanting isn’t meant to destroy an irrevocable trust. Instead, it’s a tool that can be used to fix problems that could otherwise leave beneficiaries in a troubled position. If you’re a trustee or beneficiary who thinks that this may be appropriate, learn more about your legal options.

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