Relocating a trust to a new state, referred to as decanting, means distributing the assets from the old trust to a new one written with more favorable terms governed by a state with ‘better’ laws. ‘Better’ laws often depend upon whether you are the trustee or the beneficiary and if such laws lean in your favor.
Decanting an irrevocable trust is an estate-planning technique that many attorneys and wealth advisors recommend when the current laws hinder the intentions behind a trust that cannot be revoked. This may result from clients having an irrevocable trust set up in a state that imposes hefty income taxes, has weak creditor protection laws or who need more lenient dynasty provisions.
There are several steps to consider when choosing to relocate your irrevocable trust to a new state:
- Ensure the trust contains a provision allowing it to be relocated.
- Determine if the state has a long-arm statute that will continue to tax the trust based on the grantor’s residency rather than the trust itself. This may defeat the purposes.
- Evaluate the effects on all parties including the trustee and beneficiaries.
- Evaluate the dynasty laws if longevity is your goal.
Decanting an irrevocable trust is a complex issue and will need to be assessed thoroughly by an experienced estate planning attorney. Contact Stouffer Legal at 443-470-3599 for a consultation.