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The Problem With Irrevocable Trusts

By January 26, 2012October 24th, 2018Estate Planning Blog, Robert Lamm

Robert Lamm

The problem with irrevocable trusts is that, well, they are irrevocable.  Once executed, an irrevocable trust may only be amended on rare occasion, and in most cases, only upon court order.   Life happens and sometimes the Trustee is faced with a situation that was not contemplated by the creators of the trust when they signed the document. Fortunately, many states now grant a Trustee Decanting Powers that allow them to essentially amend trusts, without court order, that otherwise could never be changed.

“Decanting” allows the distribution of trust property to another trust in order to achieve a variety of favorable tax and non-tax results or address changes in law, issues with respect to trust administration or changed circumstances.

New York, Alaska, Tennessee, Delaware, South Dakota, Florida (another good reason to use Florida for estate planning purposes) and New Hampshire provide Decanting powers to Trustees.

Reasons for trust decanting include:

(a) Updating or modifying trust provisions

(b) Improving trust administration or management

(c) Correcting drafting errors

(d) Addressing changed circumstances

(e) Removing unworkable restrictions

(f) Changing provisions relating to trusts powers and succession

(g) Achieving tax savings

(h) Changing trust situs

(i) Combining or dividing trusts

(j) GST planning (Generation Skipping Transfer)

This is a significant development in estate planning and should be considered when creating an irrevocable trust.