Many individuals choose to use an irrevocable trust as part of their estate planning efforts in an effort to maximize tax savings. Different from a revocable living trust, these types of trusts provide the opportunity to manage assets in a manner which can help minimize the state’s estate tax once the individual has passed away. However, the tax benefits that are derived out of an irrevocable trust come with some limitations.
Typically, once the irrevocable trust is in place, the individual does not have the ability to modify any of the terms it contains. In essence, the individual no longer owns their own assets, because they have been transferred to the trust. Management of the assets is now left to the trustee of the individual’s trust, who will maintain control until it is time for distribution of all of the assets to the beneficiaries.
However, life has a way of changing, and creating new circumstances. This often requires the need to adjust the terms of the trust that are inaccessible. The irrevocable trust simply binds the individual to the terms, which cannot be changed without involvement by the court system. Because of that, any changes require decanting the trust in court.
Transferring Assets
When an individual is faced with the need to alter an irrevocable trust, they often turn to decanting the trust in order to better manage their estate plan. This usually requires that the trustee move the assets from the existing trust to a new one that has the desirable terms. This allows flexibility of the assets, instead of maintaining it in the old, inflexible irrevocable trust.
Many states, including Virginia, have specific statutes that explicitly address decanting irrevocable trusts. Because of that, it is imperative to use the skills of a specialized estate planning attorney that has the experience in moving assets from one irrevocable trust to another.
The courts in many states have decided that if the distribution of assets from an old irrevocable trust to a new one best serves the beneficiary, it will likely be allowed. However, the transfer of assets must meet certain criteria, following the letter of the law. Usually, the trustee must perform the transfer of assets voluntarily, and not under any stated stipulations or directions.
The Process
Needless to say, to decant to trust is an extremely complicated procedure. Many laws within the state need to be adhered to, to ensure validity of the transfer, and acceptance by the court system. Because of that, it is essential to seek out experienced attorney that specialize in estate planning. This will ensure that the proper transfer of assets through the decanting process will be successful. Individuals that attempt to go it alone often fail because they neglect necessary requirements that they might not understand.
Often times there are numerous legitimate reasons for an individual to decant their irrevocable trust. It simply may be that the existing terms of the trust need to be lengthened, or new assets have been acquired. Sometimes it involves an investment portfolio, where a broader investment strategy needs to be incorporated. Other times, it might be necessary to add or change the beneficiary of the trust.
The decanting process has the ability to assist families that are working with trusts that are decades old, and may have become obsolete or at least outdated. Although in the past altering in irrevocable trust was the only legal process, and one it was extremely costly to perform, decanting has now become a very popular solution, and one that produces better results. Through decanting the trust, the individual can ensure that their wishes have been carried out once the time comes to distribute their assets.