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How to repair a broken trust

| Sep 17, 2020 | Trust Administration |

There are two main categories of trusts. Revocable and irrevocable. Revocable trusts allow the person that creates it, known as the grantor or settlor, to make changes or cancel the trust. Irrevocable trusts offer certain extra benefits in exchange for sacrificing this flexibility. However, sometimes situations occur, which means it is desirable to make changes to an irrevocable trust. Fortunately, California law provides ways to get around this.

When is a trust broken?

You could consider a trust broken when it no longer serves its intended purpose. That could be due to a change in laws or a change in circumstances. Many people set up trusts to reduce the taxes they pay when they transfer their assets. However, with the estate tax exemption currently sitting at over $11 million, you may no longer need this. Errors in the drafting of a trust may be another reason to repair it.

What is decanting?

Decanting is a way to move assets from an irrevocable trust into a new trust. While it is not legal in all states, it has been since 2018 in California when the state implemented the Uniform Trust Decanting Act. However, you can only decant trusts created since the beginning of 2019. The idea is that a fiduciary can make these changes to make the trust more effective for the beneficiaries while still respecting the grantor’s intentions. While the fiduciary does not need anyone’s permission, they must notify people. If beneficiaries are unhappy, they can challenge the decision.

It can still be possible to repair a trust created before 2019. However, the conditions are stricter. You typically need the approval of all the beneficiaries and the court to do so.

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