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Decanting an irrevocable trust in California

On Behalf of | Dec 13, 2023 | Estate Planning |

Irrevocable trusts are a popular estate planning tools because they allow estates to be administered without first going through the public and sometimes costly probate process. Irrevocable trusts may also reduce estate taxes. Irrevocable trusts are so named because they cannot be changed once they have been created, which is their one major drawback. This can be a problem when a trustee has to be replaced or the provisions of the trust must be updated. To help people in this situation, California law allows what is known as trust decanting.

Trust decanting

Trust decanting is named after a term used in viticulture to describe transferring wine from a bottle to a carafe to remove sediment. When a trust is decanted, the outdated or unwanted terms and conditions are removed by “pouring” the desirable parts of the trust into a new or existing trust. Most people place the decanted terms and provisions into new trusts.

Trust decanting in California

Many states do not allow trust decanting, and the Golden State was one of them until lawmakers passed the California Uniform Trust Decanting Act in 2018. Grantor retained annuity trusts, charitable remainder trusts, qualified Subchapter “S” trusts and marital estate or tax planning trusts cannot be decanted in California, but other types of trust can be. However, the trust’s settlor and all of its beneficiaries must approve of the changes.

Estate planning flexibility

An estate plan may be revised from time to time if the wishes or needs of the maker change. Changing the provisions of a will or revocable trust is fairly straightforward, but updating irrevocable trusts is difficult because they are irrevocable. Trust decanting makes changing irrevocable trusts possible, and California law was revised in 2018 to allow it. When an irrevocable trust is decanted, its desirable terms and provisions are “poured” into a new or existing trust.