Many clients show concerns over the idea of creating an irrevocable trust. Things change. What happens if the trust no longer suits your situation? There are ways to make changes to an irrevocable trust. Decanting is one of the most popular and useful methods. Terms can be altered and poured (decanted like a bottle of wine, hence the name) into a new trust if the terms of the original trust allow for decanting.
Here are some popular reasons to decant a trust:
- The need to move income tax liability to lower income taxpayers
- The need to create a special needs trust to prevent a disabled person from losing government benefits
- To combine multiple trusts into one for economic reasons as well as better efficiency in administration
- To correct errors or ambiguous language in an original trust
- To change the governing law of the trust
- To add distribution safeguards for beneficiaries who are overspending, suffer from addictions or need protection from a divorce or creditors
- To allow the trust to qualify to own certain types of stock
- Change trustee provisions, and/or
- Modify investment powers.
While those reasons may be valid, decanting a trust is a complicated issue under Maryland law. The Maryland Court of Appeals issued an opinion in 2017 reminding estate planning attorneys to exercise caution when amending a trust in a manner that impacts the interests of the beneficiaries. The purpose of this ruling is to preclude any changes that will negate the settlor’s original intent in establishing the trust.
In the case above, there were four beneficiaries and the original trust allowed the trust to be “revoked, altered or amended from time to time by an instrument in writing, signed by the holders of not less than seventy-five (75%) percent interest herein and delivered to the trustee.” Three beneficiaries attempted to use this provision to cut out the fourth beneficiary. The higher court held that the amendment provision does not give authority to completely remove a beneficiary from an irrevocable trust. The settlor’s intentions were to provide for all four beneficiaries and a trust cannot be decanted in a way to undermine those original intentions.
If you want to create an irrevocable trust or amend one that has already been established, contact the estate planning attorneys at Stouffer Legal in the Greater Baltimore area. We can help you accomplish your goals while remaining well in line with the rulings of the higher courts of Maryland. Estate planning is never static and can always be updated and amended to reflect current goals and changing situations.You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
