Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Neither Udell Associates nor Pendragon Financial Services are affiliated with Kestra IS or Kestra AS. This site is published for residents of the United States only. Registered Representatives of Kestra Investment Services, LLC and Investment Advisor Representatives of Kestra Advisory Services, LLC, may only conduct business with Imageresidents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact our Compliance department at 512-697-6000.

Estate Planning Life Insurance Charitable Gift Annuity Risk Management Deferred Annuities


Decanting breathes new life into an old trust

Decanting a bottle of wine – that is, pouring it into another container helps to remove sediment and allows the wine to “breathe”. In the same vein, decanting can breathe new life into an irrevocable trust. This process, which is permitted in many states, allows a trustee to use his or her distribution powers to “pour” funds from one trust into another trust with different terms.

Decanting provides the trustee with added flexibility to adapt a trust in light of changing tax laws or family circumstances. But decanting laws vary dramatically from state to state, so it's important to familiarize yourself with the differences and evaluate their effect on your estate planning goals.

Potential benefits

Depending on the language of the trust and applicable state law, decanting may let the trustee:
• Correct errors,
• Take advantage of new tax laws,
• Eliminate or add a beneficiary,
• Extend the trust term,
• Modify the trust's distribution standard,
• Add spendthrift language to protect the trust assets from creditors' claims,
• Move funds to a special needs trust to preserve a disabled beneficiary's
   government benefits, and
• Take advantage of another state's more favorable tax or asset protection laws.

If you’re in the process of planning your estate, consider including trust provisions that specifically authorize your trustee to decant the trust. Even for an existing irrevocable trust, however, your trustee may be able to take advantage of decanting laws to change its terms.

Altered states

Differences in state law complicate the decanting process. In some states, decanting is authorized by common law. But in recent years, more than a dozen states have enacted decanting statutes.

Several other states are considering similar laws. A detailed discussion of the various decanting laws is beyond the scope of this article, but here are several issues that you and your advisor should consider:

If your trust is in a state without a decanting law, can you take advantage of another state's law? Generally, the answer is “yes”, but to avoid any potential complaints by beneficiaries it’s a good idea to move the trust to a state whose law specifically addresses this issue. In some cases, it's simply a matter of transferring the existing trust's governing jurisdiction to the new state or arranging for it to be administered in that state.

Will the trustee need court approval? Most states’ laws permit decanting without court approval. If the trustee anticipates beneficiary objections, however, he or she may want to seek court approval voluntarily.

Will the trustee need to notify beneficiaries or obtain their consent? Decanting laws generally don't require beneficiaries to consent to a trust decanting and several don't even require that beneficiaries be notified. Where notice is required, the specific requirements are all over the map: Some laws require notice to current beneficiaries while others also include contingent or remainder beneficiaries. Even if notice isn't required, notifying beneficiaries may help stave off potential disputes down the road.

What is the trustee’s authority? When exploring decanting options, trustees should consider which states offer them the greatest flexibility to achieve their goals. Generally, decanting authority is derived from a trustee’s power to make discretionary distributions. In other words, if the trustee is empowered to distribute the trust's funds among the beneficiaries, he or she should also have the power to distribute them to another trust. But state decanting laws may restrict this power.

Some decanting laws, for example, require the trustee to act in the best interests of certain beneficiaries or heirs or to meet certain standards of care. Also, while decanting laws generally allow decanting when the trustee has complete discretion over distributions of principal and income, their rules differ for trustees whose powers are restricted. Some allow decanting only if the trustee has the authority to distribute principal, while others allow it even if the trustee has only income distribution authority.

Some state laws prohibit decanting if distributions are limited by an “ascertainable standard” – such as a beneficiary’s health, education, maintenance and support – but others don't. Laws in several states permit a trustee with ascertainable standard authority to decant a trust even if there”s no current need for a distribution. Decanting laws in other states generally don’t address this issue.

State laws differ on the extent to which decanting can eliminate a beneficiary. Decanting laws generally don't permit decanting to add a new beneficiary. But a trustee may achieve this goal indirectly if he or she has the authority to grant a power of appointment to an existing beneficiary. Again, the law varies from state to state as to whether – and to what extent – a trustee can use decanting to add a power of appointment.

Unanswered questions

These are just a few of the many differences among the state decanting laws. One question that remains unanswered is the potential tax impact of decanting.

In light of the complexities and uncertainties surrounding decanting, it’s critical for you and your trustees to consult with your estate planning advisor before “popping the cork.”
back to top back to Insights


We are a wealth management and estate planning firm specializing in estate
and trust planning, income tax planning, philanthropy and asset management.