Trust Decant – Old Wine New Bottle

Trust Decant

The term “decant” means to pour the contents of one container into another container.  It is like pouring old wine into a new bottle.  It has come to refer to the practice of forming a new updated trust, and transferring the assets from an old obsolete trust to the new trust as a trustee to trustee transfer. It is a mechanism for updating old or inadequate irrevocable trusts.

Decanting a Trust is one of the many ways in which an existing Irrevocable Trust can be updated or corrected.

Trust Decant and Property Rights

Although the term “decant” has only recently come into use, the practice of a trustee to trustee transfer from one trust to another is ancient. It arises from the inherent powers of private parties to deal with their property, and powers expressly granted to trustees under well formed trust instruments.

Approximately 30 or more states have adopted some variation of the Uniform Trust Code Decanting Act which expressly acknowledges the power to decant a Trust.  However, decanting does not require statutory authority or permission from any governmental authority. The recognition of the power by statute brought the practice to the attention of attorneys who were previously unaware of it. Some argue that the absence of statutory authorization means it cannot be done.  Unless the Trust is poorly drafted, the notion that decanting requires statutory authorization to be valid is completely without merit.  One does not need statutory authorization to deal with one’s property.  Trust statutes by their terms merely fill in the blanks for poorly crafted trusts that are silent on critical issues.  Such statutes don’t create rights.

Decanting With The Well Crafted Trust

A thorough Trust document will expressly grant the Trustee the powers necessary to “decant” the assets of the original Trust to a new updated Trust. For example, it is typical that a Trust instrument will grant the Trustee power to “perform every act in the management of the Trust property which individuals may perform in the management of like property owner by them free of trust. Trustee may exercise every power with respect to each item of property in the Trust estate, real or personal, which individual owners of like property may exercise”.

Better formed Trusts will include provisions that allow for the formation of new trusts, the creation of sub-trusts, transfer to other trusts for the benefit of the beneficiaries, and similar such provisions that make decanting possible.

No Need for Government Permission

For clarity sake, individuals who own property can transfer their ownership of such property, and not only don’t need governmental permission to do so, but states are specifically prohibited from restricting the right to do so. Such property rights are protected under the Contracts Clause of the US Constitution which prohibits any state law from “impairing the Obligation of Contracts” and the Fifth and Fourteenth Amendments which provide due process protections for “life, liberty and property”.  Among other things, this means that a state’s statutory silence about a property right does not act as a bar against exercising such a right.

The power to decant does not arise by statute. Again, transferring ownership of assets is a property right and a contractual power. Statutory recognition of such rights and powers merely fills in the gaps for inadequate or poorly drafted trusts that do not expressly or completely state what Trustees can do with Trust property. Trusts that are so thin or so badly worded that they fail to expressly grant Trustees the power to exercise property rights or to transfer ownership of trust assets, may need to rely on such statutory authority.

A well crafted Trust does not rely on the politicians to do the lawyer’s job by statute, but rather expressly defines and spells out the scope of Trustee’s powers. Lawyers who defer to statutory defaults in lieu of defining what Trustees can and can’t do, aren’t doing their job, and are making their clients vulnerable to the whims of the political process.

There is no good faith basis in fact or law to argue that a decant was not valid because it was done before a state adopted a statute recognizing the power to decant. Any such argument is rooted in ignorance of the law and the facts. If decanting requires statutory authorization to be valid, by the same logic, so does breathing, and any attorney making such an argument must refrain from inhaling and exhaling air until they can produce statutory authority for their right to do so.

I Want a New Trust – Trust Decant Old Wine New Bottle

Decanting is particularly helpful for fixing problematic irrevocable trusts which may include bypass trusts, special needs trusts, life insurance trusts, and others.  Trust Decant is like pouring old wine into a new bottle.  It takes assets out of an old trust and puts them into a new trust.  Decanting a Trust is sometimes portrayed as advanced estate planning.  It is really just good estate planning.

When you have an old or out of date Irrevocable Trust that needs to be updated or fixed for some reason, decanting by pouring the old trust into a new trust is one of a number of options.