It can be a challenge to change an irrevocable trust. Decanting in the trust context allows a trustee to pour the assets of one trust into another under special circumstances.
Our January 8, 2014 blog covered the basics of decanting. At the time, 21 states had passed the legislation, but Colorado was not among them. But in the last month, Governor John Hickenlooper signed the Colorado Uniform Trust Decanting Act into law. It will become effective August 10, 2016.
When could decanting be a useful strategy?
The Act applies to all irrevocable trusts with the exception of those held strictly for charitable purposes. If terms of a trust have become outdated, decanting can be used to do the following:
- Correct a drafting mistake,
- Change trustee provisions that might relate to succession or reallocation of powers,
- Add a special needs component or
- Comply with tax laws.
An added benefit is that the Act allows a trustee to make the changes without a trip to obtain court approval. There is a notice requirement however. A trustee must provide 63 days notice (including a full copy of the original and second trust instruments) to interested persons.
Importance of obtaining legal counsel
In the estate planning process, you can restrict or limit decanting powers. The Act does impose a fiduciary duty on trustees when decanting a trust. What does this mean?
A good basis must support a decision and it must be “in accordance with the purposes of the first trust.” As a trustee, it may make sense to seek a court determination of whether the proposed decanting action complies with your fiduciary duties to mitigate risks of future litigation.
Unlike pouring that bottle of wine, these issues make it important to discuss your concerns with a trust administration attorney before taking action. As the Act goes into effect, a lawyer can help you with the decanting process as well.