Defining a “Decanting” Trust and the Benefits

Posted: March 13, 2017 | Trusts

In the case of trusts, the term “decanting” refers to taking all the assets from one trust and moving them to another trust, most commonly moving them into a trust governed by the laws of another State.   In other words, a trustor with a California trust could “decant” the assets from his/her current trust to a new trust into Nevada, or into any of several other States that have laws permitting decanting.

Why can decanting be a good idea?   There are several reasons.

Decanting can be used to extend the term of the trust.   As an example, California trusts are governed by a modified version of the “rule against perpetuities,” whereby trusts are required to terminate no later than twenty-one years after the death of the last descendant of trustors who were alive at the creation of the trust. However, the trust can last up to 90 years before the common law rule is applied.   By contrast, a State such as Nevada has a statute allowing trusts to continue for up to 365 years.

Decanting can also be used to eliminate or add beneficiaries and/or take into account other changing family circumstances.

Another reason to decant a trust would be to achieve a step-up in basis or increase the tax basis on trust assets, to reduce tax obligations when the assets are distributed.   Owners of a trust also may want to change the governing law of the trust and choose a State with more flexible laws, such as those affording a trustee more freedom of action or providing more favorable tax rates.

California does not have a decanting statute, so this procedure cannot be used, however many states do have a decanting statute.   Some popular States that allow decanting include Alaska, Delaware, Florida, Nevada, New Hampshire, South Dakota, Tennessee and Wyoming.

For more information about the potential benefits of decanting your trust, contact our experienced team of attorneys at www.hoganlawgroup.net.