People who opt to establish an irrevocable trust typically use this option so they can take advantage of the protective benefits. Those come in exchange for not being able to change or cancel the terms of the trust. While this isn’t an issue for some situations, there are times when some terms may need to be changed.
Illinois law recognizes that trusts that were created years ago may become outdated, and the law provides trustees overseeing irrevocable trusts the ability to adjust the trusts in very limited cases. Changes in tax laws, administrative efficiency and beneficiary circumstances can all make the current trust less effective than the original trust intended. In those cases, decanting the trust may be beneficial.
When can a trust be decanted?
Decanting an irrevocable trust means transferring the assets into a new irrevocable trust. The Illinois Trust Code governs when and how trustees can decant an irrevocable trust. Typically, this occurs when the trustee has discretionary authority to distribute the trust’s principal, which forms the foundation for transferring the assets into a new trust that has modified terms that still represent the nature of the original trust.
There are limits to what the trustee can change when decanting. The new trust can’t add or remove beneficiaries, and it can’t alter the interests of the current beneficiaries. Any changes have to fall in line with what’s allowed by law and the original trust. Things like vested interests and restrictions set by the original trust must remain in place.
Decanting a trust isn’t something that should be done lightly. Trustees should only do this when absolutely necessary and only after they provide adequate notification to beneficiaries. Some beneficiaries may object to the changes. Understanding this process and these matters may be a bit easier if you work with someone familiar with these matters.
