10/27/2014
The
Hows and Whys
of
Trust Decanting
Justine Overturf Singh, Fifth Third Private Bank
April J. Risk, Faegre Baker Daniels LLP
What is decanting?
Statutory method of modifying a trust
arrangement by pouring the trust property
into a new trust, governed by a new trust
agreement.
Statutory authority: I.C. 30-4-3-36
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Trustee must have authority to invade trust
principal in order to decant.
If the trust agreement only permits or
requires distributions of trust income –
distributions of principal are not permitted –
then the trustee cannot decant the trust
property.
Indiana Code 30-4-3-36(c) states that the
exercise of the decanting power is
considered to be an “exercise of a power of
appointment, other than a power to appoint
to the trustee, the trustee’s creditors, the
trustee’s estate, or the creditors of the
trustee’s estate.”
• Who decants? The Trustee
• What do you decant? Trust Property of
Irrevocable Trusts
• Why decant? To modify a trust’s governing
instrument to carry out the grantor’s
purpose, given current facts and
circumstances
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Specific circumstances where decanting might be useful:
1. To modify trustee succession provisions
2. To convert a non-grantor trust to a grantor trust (and vice versa)
3. To add trust protectors and other fiduciaries
4. To consolidate existing trusts
5. To sever existing trusts
6. To eliminate beneficiaries??
7. To convert the trust to a special needs trust
8. To postpone distributions
9. To add a spendthrift clause
10. To move jurisdictions/change governing law
11. To correct drafting errors
What limitations exist on a trustee’s authority to
decant?
1. Cannot add beneficiaries
2. Cannot eliminate or reduce any income annuity
or unitrust interest in the assets of the first trust
3. If contributions to the first trust qualified for a
marital or charitable deduction, decantee trust
cannot include provisions that would prevent the
trust for qualifying for the same deduction
Decanting will not extend the time at which the
permissible period of the rule against
perpetuities begins nor will it alter the law that
determines the permissible period of the rule
against perpetuities of the original trust.
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How to decant?
1. Identify the decantee trust
2. Written document, signed and
acknowledged by the trustee, filed with
the trust records
3. Written notice to the beneficiaries 60 days
in advance of the decanting
The decantee trust might be:
• A pre-existing trust
• A new trust created by the same settlor
• A new trust created by the trustee
Implementation:
1. Statutory requirements – a written
instrument, signed and acknowledged by the
trustee.
2. Other recommended provisions for
decanting instrument:
– Identification of trust to be decanted and
decantee trust
– Recitation of trustee’s power to invade principal
– Description of trust property to be decanted
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The Notice Requirement
• To the qualified beneficiaries of the trust to
be decanted
• 60 days prior to decanting – may be
waived by qualified beneficiaries
• Describe the manner in which the trust will
be decanted (a copy of the decanting
instrument is sufficient)
Involvement of Trust Beneficiaries
• Trustee is not obligated to obtain the
beneficiaries’ consent
• What if beneficiaries object?
– Statute does not specify consequence of a
beneficiary’s objection
– Trustee might consider modifying decanting
plan or applying to probate court for
instruction
Other issues to consider:
1. Limitation to trustee’s authority to invade
trust principal
2. GST exemption
3. Grantor trust status
4. Powers of appointment
5. Eliminating rights to withdraw principal
6. Trustee’s fiduciary duties
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The EIN – to keep or not to keep?
• Trustee’s fiduciary duties when decanting
– No duty to decant
– Fiduciary standard in determining how and if
to exercise decanting power
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