What is Trust Decanting?
Decanting is a new statute in South Carolina that was effective January 1, 2014. The concept of decanting is codified at S.C. Code Section 62-7-816A. Technically speaking, decanting is the ability of a trustee to make a distribution from one trust to another trust – rather than to a beneficiary of the first trust. While this sounds quite mundane, it is quite a powerful concept because the second trust need not have identical terms as the first trust. This allows the trustee to modify a trust that is otherwise irrevocable. Decanting gets its name from the concept of pouring wine into a decanter (a new vessel) in order to improve the wine. The trustee of the original trust is pouring the assets of the original trust into a new vessel, the second trust in order to improve the trust.
When is decanting useful?
Decanting can be beneficial in several instances, but two major uses of decanting include combining trusts that are not otherwise eligible for combination, and the modification of irrevocable trusts. There are restrictions on the types of provisions that can be modified, but surprisingly significant modifications can be made, particularly with respect to successor trustees and administrative provisions. Often, because of the long periods of times that trusts are in existence, the provisions become outdated. Decanting provides an opportunity to update these provisions to comply with modern tax laws and to address situations that were perhaps not anticipated upon initial drafting.
What are the requirements to decant a trust?
There are several requirements that must be met in order to determine if it is possible to decant a trust. The two most important requirements are (1) the trustee who performs the decanting must not be a beneficiary, and (2) the trustee must have the discretion to distribute the assets of the original trust. There are several other minor requirements that must also be met; however, the two mentioned above prove the most common barriers to decanting. If the current trustee is a beneficiary of the trust, it may be possible to have the current trustee resign in favor of a successor trustee who is not a beneficiary and who may perform the decanting.
Do I need a lawyer to perform a decanting?
Almost certainly. Decanting is a complex process that is still relatively new. In order to perform the decanting, an entirely new trust instrument must be drafted. It is also possible, depending on the assets of the original trust, that deeds and other types of assignments (membership interests in an LLC or partnership interests) must also be prepared. These are tasked best handled by a lawyer competent in the law of trusts.