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Decanting an Irrevocable Trust May Prove Beneficial

Irrevocable trusts are advantageous in many ways, but they can also be notoriously difficult to adjust and change. However, a specific estate planning tool known as decanting is gaining popularity with people who wish to adjust and improve the terms of their trust. Decanting basically involves distributing assets from one trust to a newly established trust that has more favorable conditions. If an irrevocable trust is currently subject to high taxes or poor protection laws, decanting might be especially advantageous.

There are several situations in which a person might consider decanting a trust. For example, an irrevocable trust might be established in which the beneficiary receives incremental amounts of money at different stages of their life. At some point, however, the grantor may decide to change the trust into a dynasty trust where the money will be spread out over different generations instead. Decanting may make this possible.

Decanting can allow a trust to be moved to a different state also. Different states have different rules regarding irrevocable trusts, and a trustee might benefit from a certain state’s rules. Rules regarding dynasty trusts also vary greatly between states. For example, a dynasty trust in Florida can remain in effect for up to 360 years. State income taxes play a large part in irrevocable trusts as well. While irrevocable trusts generally have tax advantages, a trustee might find it even more beneficial to decant the trust into a state that does not have income taxes.

It will not necessarily be easy to move a trust to a different state, however. Some trust documents do not contain provisions allowing them to be moved. In such cases, the trust must first be decanted into another trust that permits the moving of assets. The new trust can then be moved. Any Massachusetts resident who has an irrevocable trust should consider how decanting could make their trust even more beneficial.

Source:, “Secrets for successfully decanting trusts” Darla Mercado, Jan. 14, 2014

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