Many families use irrevocable trusts to make gifts to their children and loved ones, as these trusts offer certain income and estate tax advantages. However, historically, it was very difficult and costly (sometimes even impossible) to alter the terms of irrevocable trusts. Trust decanting, on the other hand, has become a popular way to allow the terms of an irrevocable trust to be modified.
Trust decanting is the process of distributing assets from one trust to a new trust with different terms for one or more beneficiaries of the first trust. Similar to the way in which wine is decanted by pouring it from its original container into another container, leaving the unwanted sediment behind, the assets from an existing trust are figuratively poured into a new trust, thereby leaving the undesirable terms in the original trust.
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New York State has a decanting statute (the first of its kind) that enables the terms of an irrevocable trust to be modified by having the trustee distribute the trust assets into a new irrevocable trust for one or more beneficiaries of the initial trust.
Lara M. Sass is a T&E attorney in New York, Rosslyn and the Hamptons. Read her entire article by clicking here.