In this article, we discuss the benefits of decanting a trust and answer the following questions:
The ability to decant a trust in Illinois is fairly new, just having come into law in 2013, and many who would benefit from the service may not even know the option exists. However, the process comes with many regulations, and depending on the language, many irrevocable trusts may be ineligible for decanting.
Simply put, decanting a trust involves moving the principal from one trust into a different trust that has more advantageous terms. This power to decant a trust usually requires three factors to be true: 1) according to the language of the trust it can legally be decanted, 2) those affected by the trust are not opposed to the action, and 3) decanting the trust does not reduce any income interest of any beneficiary.
Other than the settlor, only an authorized trustee has the power to decant a trust. If a trust is not prohibited from being decanted it will usually indicate if the trustee has absolute or limited discretion to decant the trust. The trust does not need to list that the authorized trustee has absolute authority, but rather it must not list any limitations to the trustee’s right to distribute to or for the benefit of the beneficiaries.
A trustee without absolute discretion to distribute the principal can still decant a trust but only if the second trust makes no changes to the beneficiaries or income and principal distribution language from the first trust. The second trust must essentially be the same as the first trust with reference to the beneficiaries and any stipulations surrounding them but can be changed to be more financially beneficial to the parties involved.
As long as the trust does not expressly prohibit the trustee from decanting the trust instrument the trustee should be able to proceed if the result will be beneficial to all parties involved. However, even if the trustee has absolute discretion to distribute the principal into a new trust there are still some limitations under the Illinois decanting statute, including not being able to use the decanting power for:
Decanting a trust should ultimately improve the provisions of the trust creating a more favorable agreement for all parties involved. However, there are myriad reasons a trustee or beneficiary might suggest a trust be decanted. Below you will find some of the most common:
If you have questions about decanting or modifying a trust please give us a call at 630-324-6666.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: