Decanting a trust is a legal process in Texas that allows trustees to transfer assets from one trust into a new trust with different terms. It gives trustees flexibility in managing trusts to suit beneficiaries’ needs better or address changes in circumstances.
Decanting a trust offers some benefits. However, understanding why trust decanting is needed and its benefits is helpful.
Decanting basics
Decanting involves pouring assets from an existing trust (referred to as the “first trust”) into a new trust (referred to as the “second trust”). The trustee of the first trust, typically granted decanting powers by the trust instrument or state law, executes this transfer.
Reasons for decanting
Several circumstances may make decanting a trust necessary. These include outdated trust terms, changes in tax laws, family dynamics or the need to provide for beneficiaries with special needs. Decanting can also help consolidate multiple trusts or improve the efficiency of trust administration.
Legal requirements
The decanting process is governed by the Texas Trust Code. Trustees must adhere to specific legal requirements outlined in the statute, including notifying beneficiaries and obtaining their consent if necessary. Compliance with these requirements is critical to make the decanting valid.
Trust instrument considerations
The language of the original trust document plays a crucial role in the decanting process. Trustees must carefully review the terms of the first trust to determine if decanting is permissible and to identify any limitations or conditions that may impact the transfer of assets to the second trust.
Beneficiary protections
Texas law prioritizes protecting the interests of trust beneficiaries throughout the decanting process. Beneficiaries have the right to receive notice of the decanting, access relevant trust documents and contest the decanting if they believe it adversely affects their interests.
Decanting a trust offers trustees a valuable tool for adapting trust structures to meet evolving needs and circumstances while remaining compliant with legal requirements and safeguarding beneficiaries’ interests.