Improving Your Trust Through Decanting
By: Heath Oberloh, Shareholder, Woods Fuller
If you are a wine connoisseur, you are likely familiar with the practice of decanting a bottle of wine. It is the process of pouring wine from one container to another. Wine is often decanted to separate the liquid from sediment and to improve the wine’s flavor by exposing the wine to fresh air.
Like wine, trusts can be decanted. Similar to a bottle of wine, when you decant a trust you pour assets from one trust into another. A trust may be decanted to remove unwanted “sediment” such as deadbeat beneficiaries or obsolete or ambiguous trust terms, or a trust may be decanted to improve the administrative or asset protection provisions of the trust.
There are many reasons why you might decide to decant a trust, including:
To extend the term of the trust
To change a support trust into a discretionary trust for maximum creditor and divorce protection
To change a grantor trust into a non-grantor trust to save state income tax and/or to sprinkle taxable income to beneficiaries in lower tax brackets
To change the governing law of the trust
To indirectly add a beneficiary by giving him or her a broad power of appointment
To obtain a step-up in income tax basis
To correct drafting errors or ambiguous terms
To remove a mandatory income distribution
To accelerate a future beneficiary’s interest
To change trustee or administrative provisions
To combine trusts for greater efficiencies
To separate trusts so each primary beneficiary has his/her own separate trust
To separate trusts to expand the number of $10 million Qualified Small Business Stock exemptions
Essentially, trust decanting is used to improve an irrevocable trust by creating a new trust with more desirable terms.
Currently, over half of the states, including South Dakota, have trust decanting statutes. Different states have different statutes governing trust decanting, and some allow for more extensive trust remodeling than others. Like its other trust laws, South Dakota’s decanting laws are considered the best in the nation, as they allow a trust to be decanted for almost any purpose.
Is your trust living up to its fullest potential? Do you need to remove some sediment from your trust? Would like you like to enhance your trust in some way? Talk to an attorney at Woods Fuller Law Firm to find out if it may be an option for you.
Click below to read the full article in the Sioux Falls Business Journal!
