The Private Decanting: A Do-Over Trust with your Privacy Intact

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Cash being poured from a glass bottle, isolated on white.

By Steven J. Oshins Esq., AEP (Distinguished)

What is Trust Decanting?

For many years, practitioners have struggled to find ways to change the terms of an irrevocable trust.  However, through common law and through the decanting statutes that have been enacted in many jurisdictions, it is now possible to modify an irrevocable trust.  The rationale for allowing such a modification is that a trustee who has the power to distribute the trust property to or for the benefit of one or more beneficiaries should be able to make the distribution to them in trust and dictate the terms of that trust.  Decanting is essentially a “do-over”.

Trust decanting is the act of distributing assets from one trust to a new trust with different terms.  Just as one can decant wine by pouring it from its original bottle into a new bottle, leaving the unwanted sediment in the original bottle, one can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust.

Most [but not all] Jurisdictions Require Notice to the Beneficiaries

There will be 25 states with decanting statutes as of August 10, 2016.  Of the 25 decanting jurisdictions, 18 of them require notice to be given to the trust beneficiaries before a decanting can be done.

Arizona, Delaware, New Hampshire (notice required only for charitable trusts), Nevada, South Dakota, Tennessee and Wyoming are the only decanting jurisdictions that do not require notice to be sent to beneficiaries.

Our Clients want Privacy

People value their privacy.  We go out of our way to maintain the attorney/client relationship in order to shield our clients’ private matters not only from outsiders, but also from their own family members.  As spectacular as the idea of decanting may sound to a client, the moment you inform them that all of the beneficiaries must receive a copy of the trust, the room seems to get very quiet and the excitement wears off very quickly.

Following is an example of a decanting notice statute from one of the 18 states that requires notice:

“(g) To effect the exercise of the power to appoint principal or income under subsection (a) of this section, all of the following apply:

(1) The exercise of the power to appoint must be made by an instrument in writing, signed and acknowledged by the trustee, setting forth the manner of the exercise of the power, including the terms of the second trust, and the effective date of the exercise of the power. The instrument must be filed with the records of the original trust.

(2) The trustee shall give written notice to all qualified beneficiaries of the original trust, at least ninety days prior to the effective date of the exercise of the power to appoint, of the trustee’s intention to exercise the power. The notice must include a copy of the instrument described in item (1) of this subsection.

(3) If all qualified beneficiaries waive the notice period by a signed written instrument delivered to the trustee, the trustee’s power to appoint principal or income is exercisable after notice is waived by all qualified beneficiaries, notwithstanding the effective date of the exercise of the power.”

Avoiding the Notice Problem

Assume that the trust isn’t sitused under the laws of Arizona, Delaware, New Hampshire, Nevada, South Dakota, Tennessee or Wyoming where there is no notice requirement.  Does this mean that there are no options and your client is simply going to choose not to decant the trust simply because of privacy concerns?

Take a look at the trust agreement to see if there is a change of situs provision.  Very often, the trust agreement will allow the trustee or a trust protector to change the situs simply by adding a co-trustee in that jurisdiction.  Thus, by thinking two moves ahead, notice can be avoided.  First, change the situs to the non-notice jurisdiction.  Then decant the trust.  Therefore, the client’s privacy is maintained through this private decanting.

Summary

Decanting is a wonderful tool and arguably the most important planning concept of the 21st century.  But too many of our clients become frustrated by the notice requirements that the large majority of the decanting jurisdictions require.  This article highlights the seven jurisdictions – Arizona, Delaware, New Hampshire, Nevada, South Dakota, Tennessee and Wyoming – that do not require notice for a decanting.  For those estate planning who thought that decanting had to be a family affair, this article opens up a new strategy called a private decanting.


RELATED EDUCATION & PRODUCTS

teleconferenceThere is no doubt that decanting, which is basically, pouring the assets of an existing trust into a new one, can be tremendously beneficial for you and your clients.

But, as with most estate and tax planning concepts, it’s important that you thoroughly understand it before that you recommend and implement it for your clients.

That’s why we have enlisted the help of nationally renowned advanced estate planning and asset protection attorney, Steve Oshins, J.D., AEP (Distinguished) and nationally renowned income, gift and estate tax expert, Robert S. Keebler, CPA/PFS, MST, AEP (Distinguished), CGMA for a very special 2-part presentation series entitled, “Everything You Need to Know About Decanting an Irrevocable Trust”.  >>LEARN MORE


 ABOUT THE AUTHOR

Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.


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