Revoking the Irrevocable Trust
It is more than wishful thinking! When is an irrevocable trust revocable? It seems like something you could never do based on the word ‘irrevocable’ but there are ways to get around this. Borrowing from wine terminology, it is called “decanting a trust” and here is the who, what, where, why and when of it all:
Who can decant?
Decanting is done only by the Trustee of the Trust.
What is decanting?
Decanting is the process of transferring property from one trust to another. Specifically, the term applies when a trustee transfers property from one irrevocable trust to a new trust that has terms different than the original. Typically, the beneficiaries are the same though some may have changed.
Where to decant?
The Probate code allows for decanting with or without court intervention in California. If all beneficiaries agree, no court intervention is needed. If there is dissension, you will need to file a Petition in Probate Court.
Why decant a Trust?
The terms of an irrevocable trust are typically not subject to change. With decanting, a trustee has the ability to effectively change the terms even though he or she is doing so by transferring the property to a new trust that has new terms. In states that allow for decanting, this is one method a trustee can use to more effectively manage the trust without having to go before court to seek judicial permission to take certain actions. In states that don’t have decanting provisions, like California, you may not even need to go to Court to do this.
When is decanting used?
There are wide range of situations in which a trustee can use decanting. Some common situations include: taking advantage of new laws; eliminating an old bypass trust, to put all assets in the survivor’s trust, and get the additional step up in basis; improve outdated trust provisions; address the new needs of the beneficiaries; remove a beneficiary or add new ones; or transfer the jurisdiction of the trust to a new state that has more favorable laws and tax provisions. In general, the trustee can only use decanting for the benefit of the trust beneficiaries.
Decanting can be a useful estate planning technique in updating existing sophisticated estate plans. However, this is not a do it yourself project. Consult with an experienced and qualified estate planning attorney.