Decanting a Trust – Way to Update Irrevocable Trust, Says Andrew H. Hook, Virginia Estate Planning Attorney

Hook Law Center (formerly Oast & Hook)

Virginia Beach, VA (Law Firm Newswire) March 24, 2016 – Under Virginia law, a trustee has the power to assign the trust principal or income to the trustee of a second trust. This is called a decanting power, which does not require the approval of the court or the beneficiaries. For instance, a trustee could assign the assets of a previous trust to a new trust that has up-to-date provisions.

A decanting power can also be used to add a trust adviser or trust protector, replace the trust situs, appoint a different trustee or alter trustee succession
provisions. Additionally, it can be used to change a bypass trust into a dynasty trust in order to expand its course beyond the estate tax system, and to transform a part of the trust into a special needs trust for a family member who is disabled.

According to the Virginia statute, the trustee’s decanting power has certain limitations. For example, the beneficiaries of the second trust must only include beneficiaries of the first trust, and new beneficiaries cannot be added. In addition, where the power of the trustee to distribute income and principal is
contingent on an ascertainable standard, the distributions from the second trust have to be restricted by the same ascertainable standard and the distribution power is required to be exercisable to the advantage of the same current beneficiaries unless a court approves differently. However, there is an exception for distributions made to a special needs trust.

Andrew H. Hook, a prominent Virginia estate planning attorney with Hook Law Center with offices in Virginia Beach and northern Suffolk, states,Decanting a trust can be very useful to a family who would like to modify an irrevocable trust, and introduce new provisions that are indicative of changes in estate
and tax law, and the family’s circumstances.

The second trust cannot advance the interest of a beneficiary who has only a future interest in the first trust. Furthermore, the decanting statute in Virginia contains many tax savings provisions that focus on the use of the Rule against Perpetuities and safeguarding marital and charitable deductions. Use of the decanting power requires a trustee to provide 60 days’ written notice of the trustee’s plan to apply the power to the grantor of the first trust, the first trusts’ qualified beneficiaries, as described in the Virginia Uniform Trust Code, and to any individual working as an adviser or protector of the first trust.

If a family wishes to make significant changes to an irrevocable trust, they must first replace the trustee with one in a jurisdiction that permits decanting. The family can then communicate the desired changes to the new trustee, who will employ an attorney to establish the new trust.