Establishing a trust is a common estate planning strategy that helps to protect and manage assets for the benefit of an individual’s heirs.
However, life can inspire surprising changes, and circumstances may make it necessary to adapt the terms of a trust to better align with the changing needs of its beneficiaries. This is where the concept of “decanting” a trust comes into play.
Understanding trust decanting
Decanting a trust refers to the process of transferring assets from one trust (the “original trust”) to a new trust (the “second trust”) with modified provisions. Think of it as pouring the contents of a trust into a new container, allowing for the adjustment of its terms to better suit the current circumstances.
Decanting a trust is not possible in all states, but it is permissible in Illinois. Common reasons for decanting a trust include responding to changing laws that would lead to unnecessary tax liabilities or combining multiple trusts into one. However, trusts are also decanted in order to amend the terms of a trust to make sure that the grantor’s intentions are preserved.
For example, imagine that Angela set up a trust for her children, Ben and Carrie. The primary goal of the trust is to pay for their education, with the remainder of the trust to be paid out in equal distributions when they each turn 30, 35 and 40, so that they remain financially comfortable for a long time. However, Ben is in a terrible accident when he’s 23, and unable to finish his education. The trustee may seek to decant the trust in order to amend its terms since the original trust didn’t account for either child’s potential disability.
By leveraging the power of decanting, trusts can sometimes be modified to meet the evolving needs of beneficiaries and better ensure that the assets continue to serve their intended purposes for years to come. As always, however, every situation is unique. Learning more about the legal options available to you can help you decide if decanting a trust is the right move.
