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Decanting an irrevocable trust in California

On Behalf of | Dec 13, 2023 | wills and trusts | 0 comments

California residents often include irrevocable trusts in their estate plans because they can reduce estate taxes, protect assets and ensure continuing access to government programs and benefits. The problem with irrevocable trusts, as the name implies, is they are very difficult to change. However, modifying the terms of a trust could be necessary to protect assets from creditors, correct mistakes or change trustees. In these situations, trust decanting may provide a solution.

Trust decanting

Trust decanting is named after the process of transferring wine from one bottle to another to remove sediment. When a trust is decanted, the desirable terms and provisions are “poured” into an existing trust with more favorable terms or into a new trust. The unwanted parts of the original trust are omitted. Most people choose to create new trusts as they allow them to draft terms and provisions that cater to their specific needs.

Trust decanting in California

Trust decanting is not permitted in all states, but it is allowed in California. The California Uniform Trust Decanting Act allows trusts created in 2019 or later to be decanted, but the settlor and all beneficiaries must be informed about and approve of any changes. If beneficiaries are under the age of 18, their legal guardians must be informed. In some situations, a court order must be obtained to decant an irrevocable trust in California. Charitable remainder trusts, grantor retained annuity trusts, qualified Subchapter S trusts and marital trusts created for tax or estate planning purposes cannot be decanted in California.

Estate plans should be flexible

Life is unpredictable and peoples’ needs can change, which is why estate plans should be flexible. Irrevocable trusts provide several benefits, but they are very difficult to change. Trust decanting is a process that allows individuals to “pour” the desirable parts of an irrevocable trust into an existing or new trust, and California is one of the states where it is permitted.