Effective January 1, 2025, Connecticut codified the concept of decanting. Decanting is the act of “pouring” one old irrevocable trust into a new trust with more favorable terms. Although this was possible to do before, by relying on common law, the new statute gives more structure to what a trustee can and cannot do and the process involved. The statute also authorizes the probate courts to use this method for trusts established under Wills. Today, any Connecticut trust (i.e., a trust which states Connecticut laws govern or which is administered in Connecticut) may use the decanting statute, which is similar to the New York decanting statute codified in 1992.
How Can Decanting “Fix” An Older Trust?
The decanting statute allows an authorized trustee (someone who is not a beneficiary) to move the assets from the older trust into the new trust. The statute does not allow the new trust to add any additional beneficiaries but beneficiaries may be removed. Where the older trust provided the trustee with absolute discretion to make distributions to a beneficiary, the new trust may also provide for a beneficiary to have a power of appointment where they did not have one in the older trust. This means that upon the termination of the trust, that beneficiary can now dictate where the remaining trust assets will be distributed. This can be used as a “back door” means of adding a remainder beneficiary.
Under decanting, the authorized trustee can also extend the trust for a longer period (e.g., an age 30 trust can be extended until the beneficiary’s death). The statute also allows the discretion standard for distributions to change but only after the initial time period of the trust is met. For example, if the old trust states that distributions may be made for a beneficiary’s health, maintenance, support and education until age 30 and then the balance passes outright, the new trust may say that after the beneficiary attains age 30, the trust assets no longer pass outright but shall remain in trust for the beneficiary’s lifetime with distributions in the trustee’s sole, absolute and uncontrolled discretion. There are also important provisions in the statute to allow a trust for a disabled beneficiary to be added into a special needs trust.
Decanting is not the only way to accomplish the goal of addressing problems with an existing irrevocable trust. In 2020, Connecticut adopted the Uniform Trust Code (“UTC”). The UTC provides other means to amend a trust, such as non-judicial settlement agreements, modification of trusts due to changed circumstances and combination of trusts.
Who Will Be Aware Of The Decanting?
As part of the decanting statute, the settlor (i.e., creator) of the old trust; all beneficiaries and any designated representatives of the old trust; any person who may remove or replace the trustee in the old trust; trustees of the old trust and the new trust; and any person having a power of appointment over the old trust are required to receive copies of the old and new trusts and the decanting instrument 60 days before the decanting can become effective, unless they waive the notice period. No consent is required.
Does Decanting Give The Trustee Too Much Power?
A settlor may assume that the trust document may not be amended since the document itself does not state the various ways that the document may be amended under the law. A settlor who does not want to permit modifications may choose to state that in the trust or to express a material purpose of the trust which cannot be changed. Additionally, decanting generation-skipping tax- exempt trusts may have unintended tax consequences.
In closing, modern trust documents usually build in flexible terms so that decanting might not ever be needed. Decanting provides flexibility for old trust documents which allows a trustee to address unforeseen events or changes in circumstances of beneficiaries to best carry out the settlor’s purposes in creating the trust. For more information, please contact Kimberly T. Smith (ksmith@brodywilk.com) or another BW attorney.
