Decanting

Decanting borrows its name from wine: just as you might pour wine from one bottle into another to leave sediment behind, a trustee "pours" assets from an older trust into a newly drafted trust. The new trust can correct drafting errors, update outdated administrative provisions, extend the trust's duration, change the situs, or modify distribution standards, without requiring court approval in many states.

For wealthy families, decanting can rescue a trust that no longer fits. Consider a hypothetical family whose trust was drafted decades ago with rigid provisions that made sense then but now create administrative headaches or missed planning opportunities. If the trustee holds broad distribution powers, state decanting statutes may allow a straightforward transfer into a modernized trust.

Decanting is not universally available. Rules differ significantly by state, and some states impose restrictions, for example, prohibiting changes that accelerate distributions to current beneficiaries or eliminate vested interests. Tax consequences also require careful review; a poorly executed decant can trigger gift tax or alter a trust's generation-skipping status. A qualified attorney must evaluate whether decanting is permissible and advisable in any particular situation.