Many families find themselves bound by outdated trust arrangements that no longer serve their needs. Fortunately, there is a solution called trust decanting, and it is helping California families adapt their trusts to modern realities.
What is trust decanting?
Trust decanting allows the transfer of assets from an existing trust into a new and more efficient one. Think of it as pouring wine from an old bottle into a new one, keeping the valuable contents (assets and core intentions) while leaving behind unwanted elements (outdated provisions).
When should you consider decanting?
Here are common scenarios where decanting might be the solution:
- Your trust was created before major tax law changes, and now you are paying unnecessary taxes or missing out on new tax benefits.
- Your children have grown up, but the trust still requires distributions at ages that no longer make sense.
- Managing the trust has become complex, with multiple trustees or burdensome administration requirements that drain time and resources.
- Life events, like divorce or disability, have made the current distribution plan problematic.
- Unclear trust language is causing family disputes or making it difficult for trustees to make confident decisions.
Trust decanting offers a path to modernize these arrangements while preserving the original trust’s core purpose.
The California framework
California’s Uniform Trust Decanting Act provides clear guidelines for upgrading trusts while protecting beneficiaries’ interests. Before pursuing trust decanting, carefully evaluate these essential factors:
- The trustee must have discretionary distribution authority to make decisions about trust assets
- All qualified beneficiaries must receive proper notice of the planned changes
- The new trust must maintain or improve beneficiaries’ fixed-income interests
- Tax implications must be evaluated professionally
- The process requires thorough documentation to protect all parties involved
While these requirements might seem demanding, they exist to protect everyone’s interests and ensure a smooth transition to the new trust.
Making an informed decision
Decanting can be an excellent solution for revising an outdated trust, but it is a complex process that requires careful consideration. Consulting with experienced legal professionals can help determine if decanting is the right choice for your specific situation.
