Category: Trusts

From the moment a child is born, a parent feels an instinctive drive to protect and nurture. We childproof our homes, carefully choose schools, offer guidance through adolescence, support their careers, and watch with pride as they start their own lives.

The desire to be there for them extends beyond emotional and physical care. Finances also play a crucial role, and without proper planning, even the best intentions—yours or theirs—can fall short.

With the future in mind, you may have established a trust for your child at birth or shortly after, knowing that you would not always be there to financially support them. However, just as children outgrow toys, clothes, and bedtime stories, they can also outgrow the terms of the inheritance you created for them in their early life. A trust that worked when your child was 5 years old may no longer meet their needs and protect them effectively at 25, 35, or 45.

Like your living, breathing child, the trust you create for them must grow as they do. It should be a flexible, evolving legal tool that matures alongside them, from first steps to first jobs, from childhood to adulthood. You may not always be there, but with the right trust setup and thoughtful updates, your care and protection can be.

Trusts for Minors

Parents look at their newborns and think they are perfect just the way they are. Nothing needs changing. But as the years pass, can you say the same about the estate plan you made long ago for their benefit?

If a minor inherits money and property outright—whether through a will or beneficiary designation on an account such as a 401(k) or life insurance policy—they generally cannot access those funds until they reach the age of majority (age 18 in most states). While they are minors, managing and using any money and property given to them will likely require court involvement. And that process is rarely as picture-perfect as the child it is meant to protect.

Here is what happens if a minor inherits without a trust in place:

• A court typically appoints a guardian of the estate (called a conservator in some states) to manage the funds. That person may not be someone you would have chosen yourself, and they must operate under strict judicial oversight.
• The guardian of the estate is required to act in the child’s best interest, but their actions are limited by court-ordered spending restrictions, public reporting, and annual accounting. Also, what the guardian and the court consider to be in your child’s best interest may not align with what you believe is best for them. Without clear instructions in a legal document, the guardian of the estate may have no way of knowing your true intentions.
• When the child reaches age 18 or 21, depending on the state, the entire balance of the account that was managed with court oversight is then handed over to them with no further guidance or restrictions—ready or not.

Conservatorship (or guardianship) is an impersonal, inflexible process. Worse, it means losing control over who manages your child’s inheritance, how it is used, and when your child receives it.

A trust bypasses this system entirely and allows you to do the following:

• Appoint someone you trust (such as a family member, professional, or corporate trustee) to manage your child’s inheritance
• Specify how the money can be used and for what, such as education, healthcare, living expenses, enrichment, other essentials, or at the trustee’s complete discretion
• Delay your child’s full access to their inheritance beyond age 18 or 21 using staggered distributions, trustee discretion, or milestones such as completing college or reaching financial literacy goals

A trust lets you protect your child’s future on your terms. You know your children best—and you know that they may not be ready to manage an inheritance just because the calendar says that they are 18. By using a trust and appointing someone who is responsible for managing their money for them while they are still coming of age, you can set your child up with an inheritance structure that is (almost) as perfect as they are.

Trusts for Young Adults

Your child will not remain a child forever. Part of being a parent is accepting their transition from childhood to adulthood. However, that does not always mean letting go of the reins all at once.

The idea that a child will magically become financially responsible at a fixed age such as 18, 21, or even 25 is often unrealistic. Most young adults are still in school or just beginning their careers in their early 20s. They may be juggling student loans, entry-level jobs, or their first serious relationship.

This stage of life is about experimentation and exploration. As you likely remember, early adulthood is not a straight line. It is full of detours, resets, and reimagined goals. A sudden inheritance during this phase may be overwhelming and could derail hard-earned progress.

• Most young adults lack experience with budgeting, investing, and identifying financial red flags, whether they come in the form of peer pressure, risky ventures, or scams.
• A windfall might unintentionally discourage long-term planning, education, or steady employment.

A thoughtfully designed trust can ease your children into financial responsibility and help them avoid rough spots on the road to adulthood.

• Trusts can be structured with age-based distributions (e.g., 25 percent at age 21, another portion at age 25, and the rest at a later age), or they can give the successor trustee full discretion to decide when your child is ready to receive part or all of their inheritance.
• Trusts can also structure inheritance distributions to encourage certain behaviors—such as staying gainfully employed by matching distributions to earned income—or reward certain achievements—such as providing a lump-sum gift upon college graduation.

These options allow you to slowly releasethe trust’s reins, giving your child time to grow, mature, and take control when the road is not so bumpy and the path ahead is clearer.

At the same time, not all young adults mature at the same pace or share the same goals. Some are precocious, others are late bloomers. Some may be ready to handle money responsibly in their late teens or early 20s, while others need guidance well into their 30s. They may want to start a business, travel, become an artist, enter public service, or experiment with investing.

A flexible trust makes allowances for child-specific differences in personalities and goals.

• It can encourage financial maturity by paying for or providing distributions of the child’s inheritance if they complete personal finance courses or work with a financial advisor or other type of mentor who can help them responsibly manage their funds.
• It can transition from having a third-party trustee to allowing the child to act as a co-trustee or even sole trustee once they demonstrate readiness.
• It allows the trustmaker to create different trust structures for each of their children, taking into account their individual life paths and maturity levels.

Letting your child gradually take on financial responsibility within the protective frame of a trust prepares them for full independence. They can learn, safely make mistakes, and grow into a confident steward of their inheritance.

Trusts for Changing Needs and Grown-Up Responsibilities

Not only do children change as they grow up but the circumstances around them are also continually shifting. A trust must be malleable enough to conform to their evolving needs, emerging risks, and new family roles as your child matures into full adulthood.

Teenagers and young adults often require support for college, vocational training, or career startup costs. As adults, they may need help with major purchases, such as a home, or with long-term goals, like retirement planning.

But what about financial needs that we do not see coming? A trust must prepare for the unexpected every bit as much as the expected.

• Establishing a career is rarely straightforward. A change in jobs or career path, the decision to go back to school, a business venture, or an investment opportunity might necessitate access to funds in ways not originally conceived.
• Not every adult becomes a prudent money manager. Addiction, reckless spending, manipulative relationships, or a propensity to fall for get-rich-quick schemes are a few reasons why some beneficiaries might need more guardrails. A spendthrift clause can help protect the trust’s accounts and property from a child’s bad decisions, creditors, and other financial risks.
• Estate planning for your child involves contemplating the unthinkable: What if something happens to you? It should also ask an arguably more difficult question: What if something happens to them? An accident or disability can strike your child at any time. If they find themselves requiring needs-based government benefits (e.g., Medicaid or Supplemental Security Income), a properly structured trust can preserve access to benefits while continuing to support their quality of life.
• Marriage is a major life event, but so is divorce—the statistics on failed marriages are sobering. An outright inheritance may become marital property (and possibly subject to division in a divorce) if your child commingles the funds or property with their spouse. Holding your child’s inheritance in a trust can help ensure that what you leave them remains separate and protected—and solely with your child.
• If your child becomes a parent, their financial picture and priorities will likely shift. You may need to amend your trust to reflect that change, whether by allowing distributions to support your grandchildren’s education or by changing the trust to support a long-term, multigenerational wealth strategy.
• Large estates in particular might realize tax benefits from dynasty trusts, which are designed to grow over time and provide for multiple generations, including grandchildren and great-grandchildren, for many years or even decades to come.

A Trust That Grows Up with Your Child

Sometimes being too strict with your children can backfire. The same is true of a trust: One that is too rigid may not hold up to real-life pressures and forces. Here are a few steps essential to creating and maintaining a flexible trust that can bend but not break:

• Schedule regular reviews. Revisit the trust every three to five years or after major life events such as graduation, marriage, divorce, an adverse health diagnosis, or the birth of a grandchild.
• Choose the right trustee (and backup). Choose a successor trustee who understands your family values and your child’s unique needs. As your child matures, consider whether they are ready to serve as successor co-trustee with the person you selected or as successor trustee on their own.
• Educate your child along the way. As your child matures, engage them in conversations about the trust’s purpose and mechanics to build financial literacy and ease the transition of responsibility.
• Design with adaptability in mind. Life rarely follows a script. Incorporate discretionary authority, milestone-based provisions, or amendment language so that the trust can adapt when life takes an unexpected turn.
• Work with the right professionals. An estate planning attorney may be able to update trust provisions to align them with your child’s path, wherever it takes them, and revise the trust to reflect current law, tax rules, government benefits eligibility, and wider economic circumstances depending on when the changes need to be made.

No amount of planning can anticipate everything that life might throw our way. Life does not remain static, and neither should the trust you create for your child. Circumstances change, people change, and a trust must also change to keep pace. For assistance creating or updating your estate plan to properly plan for your children, call us.

Many estate plans today include trusts that become irrevocable upon the trustmaker’s death and continue for the benefit of a surviving spouse, children, or other loved ones. Some trusts are designed to span multiple generations. For example, a trust may leave an inheritance to a surviving spouse, then upon the surviving spouse’s death to their children, and then upon the children’s deaths to grandchildren. Including in the trust a trust protector who will have the ability to make necessary adjustments to the trust provisions as circumstances, beneficiaries, and governing laws change is important.

What Is a Trust Protector?

A trust protector is an individual or group of individuals with the power to ensure that the trustmaker’s purposes and goals are continuously fulfilled throughout the trust’s ongoing administration. The trust protector may be a family member or friend (typically someone who is not a beneficiary or trustee of the trust). Other times, this role is filled by an unrelated trusted advisor or a group of advisors acting by majority or unanimous agreement. The choice regarding whom to name as the trust protector will depend on the trustmaker’s wishes and the trust’s intended duration.

What Powers Should a Trust Protector Hold?

Generally, a trust protector can be given as few or as many powers as the trustmaker desires, subject to state law. While it may be tempting to give a trust protector a wide array of powers to deal with every possible future circumstance, the trustmaker should carefully consider the trust protector’s role and give only powers that will support the trustmaker’s purposes and goals. 

Regardless of a trustmaker’s intent, below are three powers that all trustmakers should consider granting their trust protectors:

1. Power to amend trust provisions. When a trustmaker creates a revocable trust that becomes irrevocable at their death and is meant to benefit multiple generations, they may fail to update the trust while they are alive and the trust is still revocable. People may forget to update their estate plan, while others have a change of heart near the end of life but do not have time to meet with an attorney. If the trustmaker fails to update the trust to reflect changes in circumstances, beneficiaries, or governing laws while the trust is still revocable, a trust protector may be able to fix these issues after the trust becomes irrevocable. However, the trustmaker can generally put limits on this power so that the trust protector does not have more authority than the trustmaker intends.
2. Power to add, remove, and replace trustees. Some trustmakers give beneficiaries the power to add, remove, or replace trustees. However, beneficiaries may be inclined to hastily remove a trustee who does not give in to their every request, defeating the trustmaker’s intent. Granting this power to a trust protector may be a better approach. The trust protector can objectively assess the trustee’s actions or inactions and determine whether the trustmaker’s intent is being fulfilled or derailed.
3. Power to change trust situs and governing law. Since it is impossible to predict where the beneficiaries and trustees of an irrevocable trust will live in the future, providing a way to change the trust’s situs (the place or state whose laws govern the trust) is critical. Moving the trust to a different state can help reduce state income taxes, take advantage of more favorable trust laws, or make administration easier if trustees or beneficiaries relocate. Giving this power to the trust protector will allow an objective party to determine if the change will be beneficial or is necessary to carry out the trustmaker’s intent.

Final Thoughts on Trust Protectors

Including a trust protector in an irrevocable trust agreement or a revocable trust agreement that becomes irrevocable at some time in the future is critical to the trust’s success and longevity. Nonetheless, the trust protector should be given only powers that will ensure that the trustmaker’s purposes and goals are ultimately fulfilled.

If you are interested in adding a trust protector to your trust or would like to have the trust protector provisions of your trust reviewed, please call our office.

A revocable living trust can serve as a valuable estate planning tool to help ensure that your finances remain well managed if you become incapacitated (unable to manage your affairs while you are alive) and to provide future financial security for your loved ones upon your passing. However, merely signing the trust agreement does not complete the estate planning process; to work properly, the trust must be funded.

What Is Trust Funding?

Trust funding is the process of transferring ownership of your accounts and property to the trust during your lifetime. For some accounts or pieces of property, it also includes designating the trust as a beneficiary so that the trust will receive ownership upon your passing rather than during your lifetime.

Trust Funding as a First Step for Trust Administration

A completely funded trust not only helps the trustmaker and their loved ones avoid the dreaded probate process but can also smooth the transition from you as trustee to your appointed successor trustee (the person you have selected to step in to manage your trust when you are incapacitated or have passed away).

• Accessing your accounts and property will be less complicated. If you have properly funded your trust, your successor trustee should have little or no trouble stepping in to manage the accounts and property if you are unable to do so. This can be incredibly important if you are incapacitated and action regarding your finances must be taken right away. Your successor trustee may need to provide third parties with documentation evidencing their authority to act on the trust’s behalf. We can easily prepare this documentation for you without court involvement.

• Creating the inventory for your trustee. One of the first things your successor trustee must provide to your named beneficiaries at your passing is a comprehensive inventory of all the trust’s accounts and property. If the ownership and beneficiary designation confirmations you gathered during the funding process are periodically reviewed and kept up to date, you will leave behind a helpful preliminary list for your trustee to use in creating the inventory, which can save the successor trustee time and frustration in the beginning stages of administration.

• Confidence that your plan will be carried out. The primary reason you created a trust was likely to control what will happen to your accounts and property if you become incapacitated and after you have passed away. The instructions you leave in your trust apply to only those accounts and property owned by the trust (transferred to the trust either during your life or by beneficiary designation at your death). If an account or piece of property is not owned by the trust, the instructions in the trust agreement will not control what happens to it.

A Fully Funded Trust Helps Avoid Probate

If the item is not owned by your trust and is also not jointly owned or does not have a beneficiary designation other than the trust, it will likely have to go through the probate process. During probate, the account or property will, at best, be transferred through your pour-over will to your successor trustee as the trust’s new trustee. A pour-over will should be prepared with all trust-based estate plans. It states that all accounts and property in your probate estate are to be distributed to the trustee of your trust. Pour-over wills do not contain the specific details included in the trust (such as who will receive an inheritance from you and when and how they will receive it), so they do allow for some privacy. Although the instructions in your trust will eventually control what happens to any forgotten accounts or property, your loved ones will still have to go through the time-consuming and costly probate process. At worst, if you never created a will (pour-over or otherwise) or if your loved ones cannot find it, the court will rely on a state statute for dividing your money and property. The statute will generally provide for your surviving spouse, children, grandchildren, parents, and siblings, depending on who is living at your death. The downside of relying on state law rather than on a trust is that your accounts or property could be given to someone you intended to disinherit or whom you wanted to receive only a small share.

When Your Trust Will Not Control the Outcome

If a beneficiary other than your trust has been named on an account or piece of property, it does not matter what your trust agreement says. That account or piece of property will go to whomever is listed on the beneficiary designation. The same is true with jointly owned property. In most cases, when one co-owner of an account or piece of property dies, the surviving co-owner(s) automatically receive the deceased owner’s interest in the account or property upon their death. It is important that you know what your current beneficiary designations say and that they match your estate planning goals.

Working Together Now for Future Success

You obviously care deeply for your loved ones—you would not have taken the time to create an estate plan otherwise. The last step you need to take is to fund your trust. Please call us if you have questions about this process. We are available to assist you in any way you need. If you would like, we are also available to handle the trust funding for you. Let’s partner to make sure that your hard work will set you and your loved ones up for a successful future.

Estate planning for couples in a second or subsequent marriage can be tricky, especially if their estates are disproportionate. One solution that allows the more affluent spouse to maintain control of their property and wealth and minimize potential estate taxes—while keeping their spouse happy—is the lifetime qualified terminable interest property (QTIP) trust.

The Basics of Creating a Lifetime QTIP Trust

In the estate planning world, a lifetime QTIP trust is a type of trust that allows a wealthier spouse to transfer an unrestricted amount of assets (money and property) into the trust for the benefit of their less wealthy spouse, free from estate and gift taxes.

A common estate planning strategy for high-net-worth couples has been to use a QTIP trust, not while the couple is alive, but after the first spouse’s death under what is often referred to as an AB Trust structure. After the first spouse dies, the B Trust (bypass trust) is funded with an amount equal to the federal estate tax exemption (currently $13.99 million in 2025). The remaining assets are allocated to the A Trust (marital trust). The A Trust is often structured as a QTIP trust, which qualifies for the unlimited marital deduction, allowing assets to pass to the surviving spouse without triggering estate tax until their death. 

But what if instead of creating and funding a QTIP trust after death, the wealthy spouse creates and funds a lifetime QTIP trust for their spouse’s benefit with tax-free gifts while the wealthy spouse is alive? Assets transferred from the wealthy spouse into the lifetime QTIP trust are considered tax-free gifts under the unlimited marital deduction, which allows qualifying spouses to transfer an unlimited amount of assets to each other during life or at death without incurring federal gift or estate tax, as long as certain requirements are met. The lifetime QTIP trust must meet the following criteria to qualify for the unlimited marital deduction:

• The trust must be irrevocable.
• The beneficiary spouse must be a US citizen.
• The beneficiary spouse must be entitled to receive all net income from the trust at least annually during their lifetime.
• The beneficiary spouse must have the right to demand that any non-income-producing property be converted into income-producing property.
• Only the beneficiary spouse can benefit from the trust during their lifetime. No distributions to children or others are allowed before the beneficiary spouse’s death.
• The interest granted to the beneficiary spouse cannot be terminated or diverted to someone else during the beneficiary spouse’s lifetime.
• A federal gift tax return (Form 709) must be filed in a timely manner in the year of the gift to the trust.

Planning with a Lifetime QTIP Trust Offers a Multitude of Benefits

Outright gifts to your spouse during life or after death lead to total loss of control over those assets. If you and your spouse have children from prior marriages, the problem may be exacerbated by the difference in your wealth—while the wealthier spouse will be fine if the less wealthy spouse dies first, the opposite is not true. If you and your spouse are in this situation, a lifetime QTIP trust offers the following benefits:

• The wealthy spouse can create and fund a lifetime QTIP trust without using any gift tax exemption.
• The less wealthy spouse will receive all of the trust income during their lifetime and may be entitled to receive trust principal for limited purposes if the wealthier spouse desires.
• When the less wealthy spouse dies, the assets remaining in the trust will be included in their estate, using the less wealthy spouse’s otherwise unused federal estate tax exemption.
• If the less wealthy spouse dies first, the remaining trust property can continue in an asset-protected lifetime trust for the wealthy spouse’s benefit (subject to applicable state law) and, if structured properly, the remainder can be excluded from the wealthy spouse’s estate when they die.
• After the less wealthy spouse dies, the balance of the trust can be designed to pass to the wealthy spouse’s children and grandchildren or other beneficiaries chosen by the wealthy spouse.

Do You and Your Spouse Need a Lifetime QTIP Trust?

Like other types of estate planning tools and strategies, lifetime QTIP trusts are not one-size-fits-all. They must be tailored to each couple’s unique goals, family dynamics, and financial situation. Please call us if you think you and your spouse could benefit from a lifetime QTIP trust. We will help you determine what will work best for your family.

Many people believe that once they set up a revocable living trust and change the ownership of their accounts and property from themselves as individuals to their trust, those accounts and property are protected from lawsuits. This is not true. 

While trusts commonly protect a beneficiary’s inheritance, few trusts protect assets (accounts and property) previously owned by the trustmaker from the trustmaker’s creditors. Because the trustmaker can revoke the revocable living trust and often serves as the trustee, courts may determine that creditors can still access the trust’s assets, as the trustmaker’s control over them remains largely unchanged.

No Immediate Asset Protection? Why Should You Create a Revocable Living Trust?

Fully funded revocable living trusts are still excellent tools. Here’s why: 

1. You can protect assets passing to your spouse, children, or other loved ones by placing any desired restrictions on the inheritances to ensure that your beneficiaries can still benefit without being in danger of having their inheritance accessible by creditors, predators, or divorcing spouses.  

2. Your trust can include a plan for managing your assets during your incapacity (when you cannot manage your own affairs), avoiding court interference, ensuring your wishes are carried out, and saving your loved ones time, money, and stress.

3. A properly funded trust allows trust assets to pass to beneficiaries without going through probate court. This, in turn, can minimize the time, stress, and cost of settling your final affairs.

4. By avoiding the public probate court process during your incapacity or at death, details about who is getting what will remain private.

Strategies to Protect Your Assets Without a Living Trust

Comprehensive estate planning can be complemented with a solid foundation of insurance, including homeowner’s or renter’s, personal property, umbrella, auto, business, life, disability, and the like. For business owners and real estate investors, business entities such as limited liability companies can provide additional asset protection. In addition, domestic asset protection trusts can sometimes be used, depending on your unique circumstances. Your revocable living trust is a powerful tool for protecting your loved ones. If you have questions about asset protection planning, call us. We can review your existing plan and determine what additional steps need to be taken to ensure that you and your loved ones have a secure financial future.

If the last time you and your spouse updated your estate plan was more than a decade ago, your estate plan may contain what is sometimes referred to as AB trust planning, which, until 2011, was the only way married couples could take advantage of both spouses’ federal estate tax exemptions. 

An AB trust structure helps married couples reduce estate taxes and control the distribution of the property and accounts owned by the first spouse to die. When the first spouse dies, their assets are split into two subtrusts. Trust A (sometimes called a marital or QTIP trust) holds property for the surviving spouse and avoids estate taxes by using the unlimited marital deduction. Trust B (sometimes called a bypass, family, or credit shelter trust) holds the deceased spouse’s assets for spouse beneficiaries, nonspouse beneficiaries, or some combination of the two, while minimizing estate taxes by using their estate tax exemption, which is $13.99 million in 2025. This setup helps keep money safe and ensures that it goes to the right people. 

Before 2011, if you did not use the deceased spouse’s federal estate tax exclusion amount, it was lost forever. This changed in 2011 when portability of the estate tax exemption between spouses was introduced. Portability allows a surviving spouse to inherit the unused portion of their deceased spouse’s federal estate tax exemption. If the first spouse’s taxable estate at the time of death is below the exemption limit or passes entirely to the surviving spouse under the marital deduction, the unused exemption can be transferred (or ported) to the surviving spouse, provided that an estate tax return is timely filed upon the first spouse’s death. As a result, the surviving spouse can use their own federal estate tax exemption amount plus the amount ported from the deceased spouse to minimize or avoid estate taxes upon the survivor’s passing. The good news is that portability has been made a permanent part of the federal estate tax laws. The bad news is that the AB trust planning in your old estate plan may now do more harm than good.

Take, for example, hypothetical Fred and June, who have been married for 40 years. If Fred dies in 2025 and none of his $13.99 million estate tax exemption is used, June can add Fred’s $13.99 million exemption to her own by filing a timely estate tax return exemption. If June subsequently dies in 2027 and the federal estate tax exclusion amount has been reduced to $7.5 million, she will have $21.49 million (Fred’s $13.99 million plus her $7.5 million) worth of federal estate tax exemption. Also, all accounts and property passing outright to June from Fred’s estate or revocable trust, or by right of survivorship, will receive a full basis adjustment to their fair market values as of Fred’s date of death. (Usually, the basis adjustment is a step-up in basis because property generally increases in value over time.)

However, what if Fred and June have a typical 1990s estate plan that uses an AB trust structure to ensure full use of both spouses’ federal estate tax exemptions? If they neglected to update their 1990s estate plan and Fred dies in 2025, then not only will June be stuck with two subtrusts that were drafted using decades-old planning priorities, but their beneficiaries will also receive no step-up in income tax basis for the accounts and property remaining in the B trust when June dies. Instead, the beneficiaries will inherit the B trust’s accounts and property with the basis calculated as of Fred’s 2025 date of death. As a result, if June lives for a long time, there could very well be a large capital gains tax bill when the beneficiaries decide to sell the inherited accounts or property many years down the road.

Fred and June’s story is only one scenario. It shows the downside of an old estate plan that uses AB trust planning. On the other hand, there are still many good reasons for married couples to keep AB trust planning in their updated estate plans. A two-subtrust structure allows you to provide for your surviving spouse under one subtrust in a tax-efficient way by using the unlimited marital deduction while allowing different beneficiaries under the other subtrust to benefit from accounts and property held in that subtrust immediately upon your death instead of waiting for your surviving spouse to pass away.

If you are married and your estate plan is more than a few years old, call us so that together we can determine whether an AB trust plan still makes sense for you and your family. It is possible that your existing estate plan can be revised to take advantage of the favorable features of AB trust planning while also maximizing the benefits of current estate tax exemption rates and laws such as portability and basis adjustment planning.

While many wines get better with age, the same cannot be said for some irrevocable trusts.  Maybe you are the beneficiary of a trust created by your great-grandfather over 70 years ago, and that trust no longer makes sense. Or maybe you created an irrevocable trust over 20 years ago, and it no longer makes sense for your current situation. Wine connoisseurs may wonder if there is any way to fix an irrevocable trust that has turned from a fine wine into vinegar. You may be surprised to learn that under certain circumstances, the answer is yes—by decanting the old, broken trust into a brand new one.

What Does It Mean to Decant a Trust?

Wine lovers know that the term decant means to pour wine from one container into another to open up the aromas and flavors of the wine. In the world of irrevocable trusts, decanting refers to the transfer of some or all of the accounts and property owned by an existing trust into a brand new trust with different and more favorable terms.

When Does It Make Sense to Decant a Trust?

Decanting a trust makes sense under myriad circumstances, including when you would like to make the following types of changes:

• Tweak the trustee provisions to clarify who can or cannot serve as trustee
• Expand or limit the trustee’s powers
• Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust
• Change a trust in which a beneficiary is entitled to receive their inheritance at a certain point or for certain purposes into a full discretionary trust in which the trustee decides when money will be given to the beneficiary in order to protect the trust’s accounts and property from the beneficiary’s creditors
• Clarify ambiguous provisions or drafting errors in the existing trust
• Change the governing law or trust situs to a less taxing or more beneficiary-friendly state
• Merge similar trusts into a single trust for the same beneficiary
• Create separate trusts from a single trust to address the differing needs of multiple beneficiaries
• Provide for and protect a special needs beneficiary   

What Is the Process for Decanting a Trust?

A state’s statutes or case law can allow decanting. Additionally, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.

Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions. The trustee must then transfer some or all of the accounts and property from the existing trust into the new trust. Any accounts or property remaining in the existing trust will continue to be administered under its terms; an empty trust will be terminated.

Decanting Is Not the Only Solution to Fix a Broken Trust

While decanting may work under certain circumstances, fortunately, it is not the only way to fix a “broken” irrevocable trust. Our firm can help you evaluate options for fixing your broken trust and determine which method will work best for your situation. If you have a trust that has turned to vinegar and is not what you want it to be, give us a call.

Today, many estate plans contain an irrevocable trust that will continue for the benefit of a spouse’s lifetime and then continue for the benefit of several generations. Because trusts like these are designed to span multiple decades, it is important that they include trust decanting provisions to address changes in circumstances, beneficiaries, and governing laws. 

What is trust decanting?

When a bottle of wine is decanted, it is poured from one container into another. When a trust is decanted, the accounts and property from the existing trust are removed and distributed into a new trust that has different and more favorable terms.  

When should a trust be decanted?

Provisions for trust decanting should be included in trusts that are intended to last decades into the future. Decanting can do the following:

1. Clarify ambiguities or drafting errors in the trust agreement. As trust beneficiaries die and younger generations become the new heirs, vague provisions or outright mistakes in the original trust agreement may become apparent. Decanting can be used to correct these problems.
2. Provide for a special needs beneficiary. A trust that is not tailored to provide for a special needs beneficiary will cause the beneficiary to lose government benefits. Decanting can be used to turn a trust in which the beneficiary is entitled to money into a full supplemental needs trust.
3. Protect the trust’s accounts and property from the beneficiary’s creditors. A trust that gives the beneficiary control or access to their inheritance puts that inheritance at risk of being snatched by the beneficiary’s creditors, rapidly depleting the inheritance if the beneficiary is sued. Decanting can be used to convert a trust without any asset protection features into a full discretionary trust that the beneficiary’s creditors will not be able to reach.
4. Merge similar trusts into a single trust or create separate trusts from a single trust. An individual may be the beneficiary of multiple trusts that have similar terms. Decanting can be used to combine these trusts into one trust that will reduce administrative costs and oversight. On the other hand, a single trust that has multiple beneficiaries with differing needs can be decanted into separate trusts tailored to each individual beneficiary.
5. Change the governing law or situs to a different state. Changes in state and federal laws can adversely affect the administration and taxation of a multigenerational trust. Decanting can be used to take a trust that is governed by laws that have become unfavorable and convert it into a trust that is governed by different and more advantageous laws.   

Final Thoughts on Trust Decanting

Including trust decanting provisions in an irrevocable trust agreement or a revocable trust agreement that will become irrevocable at some time in the future is critical to the success and longevity of the trust. This will help ensure that the trust agreement has the flexibility necessary to avoid court intervention to fix a trust that no longer makes practical or economic sense.  

If you are interested in adding trust decanting provisions to your trust or would like to have the decanting provisions of your trust reviewed, please call our office.

A trustee is a person or entity responsible for managing and administering your trust according to your instructions and in accordance with state law. They are considered a fiduciary (meaning they are held to a higher standard of care and owe certain duties to the beneficiaries). As a fiduciary, a trustee must protect the trust’s investments and act in the best interests of the beneficiaries. They must prepare and maintain trust accounting records and prepare tax-related forms, providing this information to the beneficiaries at their request. At some point, they may need or be required to liquidate or sell the trust’s accounts and property. 

A Trustee’s Authority to Sell Assets While Administering the Trust

When administering a trust, the trustee might encounter situations in which they need to convert trust assets into cash to provide liquidity to the trust. This could mean converting trust assets such as stocks and bonds or selling other trust property such as real estate or other high-value assets to generate the necessary funds. Though this decision must be based on prudent investor rules or standards and be in the best interest of the beneficiaries, trustees generally do not need beneficiary approval to liquidate or sell trust property, but they may seek it to avoid potential arguments in court regarding their decisions and authority. The biggest restriction is that trustees are not allowed to sell trust property for their own benefit. There may be an exception to this restriction if the trustee is also a trust beneficiary.

Creating Liquidity 

A trustee may need to create liquidity for various reasons:

• Meeting financial obligations. The trust may have ongoing financial commitments, such as taxes, mortgage payments, or insurance premiums. By creating liquidity, the trustee can fulfill these obligations without disrupting the overall trust management.
• Covering administrative costs. There could be administrative expenses related to legal and accounting services, as well as fees for managing the trust. Creating liquidity ensures that the trustee can cover these costs promptly and efficiently.
• Fulfilling distributions. If the trust mandates periodic or one-time distributions to beneficiaries, creating sufficient liquidity allows the trustee to meet these distribution requirements in a timely manner.
• Responding to opportunities or challenges. Market opportunities or unexpected financial challenges may arise that require quick access to funds. Creating liquidity enables the trustee to seize favorable investment opportunities or address unforeseen financial needs effectively.

Investment Strategy

A trustee has the authority and responsibility to manage the trust’s investments in a manner that aligns with the trust’s goals and changing financial circumstances. It may be necessary to modify the investment strategy for a variety of reasons:

• Evaluating economic conditions. The trustee must continuously evaluate economic conditions, market trends, and the performance of the trust’s assets, such as accounts and other property. If the existing investment strategy no longer serves the trust’s objectives, the trustee may need to consider adjustments.
• Risk management. Based on the trust’s performance and the financial landscape, the trustee may need to rebalance the portfolio to ensure an appropriate level of risk and potential return. This could involve diversifying investments or reallocating assets.
• Adapting to beneficiary needs. Changes in beneficiary circumstances, such as increased education expenses or healthcare needs, may necessitate a shift in the investment strategy to generate income or accommodate specific beneficiary requirements.
• Long-term growth versus income generation. Depending on the trust’s purpose, the trustee may need to adjust the investment approach to prioritize long-term growth, income generation, or a balanced approach, ensuring the trust’s sustainability and fulfillment of its intended purpose.

You Can Control the Sale of the Trust’s Assets

If you are the trustmaker and have concerns about a trustee’s authority to liquidate or sell accounts and property, you can provide specific guidelines controlling the sale of the trust’s assets.

When establishing a trust, you may have specific assets you would like to preserve, whether for sentimental reasons, future generations, or other purposes. However, you should be cautious when including provisions that restrict the liquidation or sale of particular assets.

Placing restrictions on liquidating or selling assets in the trust can help preserve family heirlooms, properties with historical or emotional significance, or specific investments that align with the trust’s long-term goals. However, overly restrictive provisions can present challenges to the trustee, especially in situations where the trust may require liquidity, when there is a need to change the investment strategy to meet financial obligations or adapt to market conditions, or if there have been changes in tax laws, economic conditions, or family dynamics.

It is essential to strike a balance between preserving important assets like certain property or accounts and allowing the trustee the flexibility needed to effectively manage the trust, ensuring the trust’s long-term viability and the best interests of the beneficiaries.

A Trustee’s Responsibility Regarding Distributions to Beneficiaries

Overall, the trustee must adhere to the instructions laid out in the trust agreement. If the trust’s terms specify that the trustee must distribute money or property to a beneficiary at a particular future date or upon meeting specific conditions, the trustee is obligated to follow these instructions precisely. That is why making informed decisions when creating a trust and defining the trustee’s role and responsibilities is important. 

Stipulating specific instructions regarding when and how distributions should be made to beneficiaries often requires attaching conditions to distributions, such as timelines and other triggering events like a beneficiary’s age or completion of a milestone. Whatever the conditions are, the trustee will usually be required to follow them unless they are illegal or against public policy.

Communication Between a Trustee and Beneficiaries Is Critical When Selling Trust Assets

The trustee should—and in some instances is required to—maintain open communication with both the beneficiaries and any co-trustees, keeping them informed about the trust’s status and decisions when creating liquidity and changing investment strategies that may affect upcoming distributions. Transparency helps answer questions and manage expectations.

Accurate and thorough recordkeeping is essential to demonstrate compliance with the trust terms and the law. Detailed records can help explain the rationale behind each decision, and relevant documents can support the actions taken by the trustee.

If you are a trustee and are unsure about the trust terms relating to the management or sale of assets, we can assist you and any financial professionals with whom you are working. If you are creating an estate plan that includes a trust, working with an experienced attorney to craft a comprehensive trust agreement can help ensure your trustee’s compliance and protect the interests of both the trust and its beneficiaries.

We can help you memorialize your intentions in your trust agreement and strike a balance between preserving your life savings and granting the trustee the necessary flexibility to manage the trust successfully. Give us a call to schedule your appointment today.