1. The Power of Decanting: Is the Trust Really Irrevocable
The Power of Decanting: Is the Trust Really Irrevocable? & Nevada Trusts
Steven J. Oshins, Esq., AEP (Distinguished)
Law Offices of Oshins & Associates, LLC
Copyright © by Steven J. Oshins.
All rights reserved.

2. “ “ Irrevocable I can’t change my trust? How could I have anticipated
my children having drug and
divorce problems? “

3. Decanting de·cant (d -k nt ) tr.v. de·cant·ed, de·cant·ing, de·cants
1. To pour off (wine, for example) without disturbing the sediment.
2. To pour (a liquid) from one container into another.

4. Decanting a Trust
Just as you can decant wine by pouring it from its original bottle into a new bottle, leaving the unwanted sediment in the original bottle, you can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust.

5. To New Trust or Pre-existing Trust?
To decant, you usually…
Create a new trust with new terms and distribute the trust assets into the new trust; or
Distribute the trust assets into a pre-existing trust

6. Common Law
The power to decant can be provided by terms of trust or authorized by state law
Decanting has also been allowed by common law
Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940)
Trustee had absolute discretion to distribute principal to beneficiary
Wiedenmayer v. Johnson, 254 A.2d 534 (N.J. Super. Ct. App. Div. 1969)
The “absolute and uncontrolled discretion” to distribute corpus in best interests of beneficiary “to be his absolutely, outright and forever”
In re Estate of Spencer, 232 N.W. 2d 491 (Iowa 1975)
Trustee with a non-general power of appointment may appoint property in further trust
Morse v. Kraft, 466 Mass. 92 (July 29, 2013)
The court authorized a “disinterested” trustee with unlimited discretion to distribute principal to decant trust assets into new trusts in which the settlors’ four sons would each act as trustee of his own trust, without obtaining judicial approval or beneficiary consent

7. Differences from State to State
Does the state allow you to decant a discretionary trust?
Does the state allow you to decant a trust with an ascertainable standard (such as health, education, maintenance and support)?
Does the state allow you to decant a trust with an ascertainable standard into a discretionary trust?
Does the state require notice to be sent to all beneficiaries?
Does the state allow you to remove a mandatory income interest?
Does the state allow the second trust to accelerate a remainder beneficiary’s interest?
Does the state allow the second trust to give a power of appointment to someone that can be exercised in favor of someone who isn’t a beneficiary of the first trust?

8. No Decanting Statute?
What do you do if the current trust situs doesn’t have decanting?
Look for change of situs provision
Nonjudicial settlement agreement
Petition local court

9. Common Reasons to Decant1
Common Reasons to Decant
Extending the term of the trust
Example: Preexisting irrevocable trust makes mandatory distributions 1/3 at age 25, 1/2 of the balance at age 30 and the balance at age 35

10. Common Reasons to Decant2
Common Reasons to Decant
Changing a support trust into a discretionary trust
Example: Preexisting irrevocable trust says that “distributions can be made by the trustee for health, education, maintenance and support”

11. Common Reasons to Decant3
Common Reasons to Decant
Saving state income tax on undistributed income
Example: Preexisting California non-grantor trust fbo California beneficiaries with distributions for health, education, maintenance and support and with a California trustee

12. Common Reasons to Decant4
Common Reasons to Decant
Changing the governing law of the trust
Example: The preexisting irrevocable trust is absolutely perfect except that it requires a bad state law and doesn’t have a provision allowing the trustee to move the trust to another jurisdiction

13. Common Reasons to Decant5
Common Reasons to Decant
Indirectly adding a beneficiary
Example: Preexisting irrevocable trust set up for spouse and descendants cut out one of the children

14. Common Reasons to Decant6
Common Reasons to Decant
Getting step-up in income tax basis
Example: Preexisting irrevocable trust for multiple discretionary beneficiaries; opportunity to give GPOAs to use unused estate tax exemption to get new income tax basis

15. Common Reasons to Decant7
Common Reasons to Decant
Correcting drafting errors or ambiguous terms
Example: Attorney accidentally added two conflicting provisions in the trust agreement

16. Common Reasons to Decant8
Common Reasons to Decant
Removing a mandatory income distribution
Example: Preexisting irrevocable trust has provision distributing all income to a beneficiary

17. Common Reasons to Decant9
Common Reasons to Decant
Accelerating a future beneficiary’s interest
Example: Preexisting irrevocable trust doesn’t include grandchildren as beneficiaries until child’s death

18. Common Reasons to Decant10
Common Reasons to Decant
Changing trustee provisions
Example: Preexisting irrevocable trust doesn’t have a successor trustee named and doesn’t give anyone the power to name a successor

19. Nevada as an Example
Let’s look at some key provisions in Nevada’s decanting statute.

20. Nevada’s Decanting Statute
NRS Circumstances under which trustee is authorized to appoint property of one testamentary trust or irrevocable trust to another trust. 1. Except as otherwise provided in this section, unless the terms of a testamentary instrument or irrevocable trust provide otherwise, a trustee with discretion or authority to distribute trust income or principal to or for a beneficiary of the trust may exercise such discretion or authority by appointing the property subject to such discretion or authority in favor of a second trust as provided in this section.

21. Nevada’s Decanting Statute (continued)
NRS The second trust to which a trustee appoints property of the first trust may only have as beneficiaries one or more of the beneficiaries of the original trust: (a) To or for whom a distribution of income or principal may be made from the original trust; (b) To or for whom a distribution of income or principal may be made in the future from the original trust at a time or upon the happening of an event specified under the first trust; or (c) Both paragraphs (a) and (b). For purposes of this subsection, a permissible appointee of a power of appointment exercised by a beneficiary of the second trust is not considered a beneficiary of the second trust.

22. Nevada’s Decanting Statute (continued)
NRS  Before appointing property pursuant to subsection 1, a trustee may give notice of a proposed action pursuant to NRS or may petition a court for approval pursuant to NRS , or Any notice of a proposed action or a petition for a court’s approval must include the trustee’s opinion of how the appointment of property will affect the trustee’s compensation and the administration of other trust expenses.

23. Nevada’s Decanting Statute (continued)
NRS  The trust instrument of the second trust may:
(a) Grant a general or limited power of appointment to one or more of the beneficiaries of the second trust who are beneficiaries of the original trust.
(b) Provide that, at a time or occurrence of an event specified in the trust instrument, the remaining trust assets in the second trust must be held for the beneficiaries of the original trust upon terms and conditions that are substantially identical to the terms and conditions of the original trust.

24. Tax Issues Income tax Gift tax
Grantor trust to grantor trust: Non-taxable per Rev. Rul
Grantor trust to non-grantor trust: Madorin (1985) case says it’s a transfer from the grantor to the non-grantor trust and therefore a taxable disposition
But generally should be non-taxable – likely only a tax if the disposition would be taxable otherwise
Non-grantor trust to grantor trust: Should be non-taxable – similar to violating a grantor trust provision with a non-grantor trust
Gift tax
Requiring beneficiaries to agree to the decanting

25. Copyright © 2014-2016 by Steven J. Oshins.
Thank You
Steven J. Oshins, Esq., AEP (Distinguished) Law Offices of Oshins & Associates, LLC Village Center Cir., Ste Las Vegas, NV Phone: Fax: Website:
Copyright © by Steven J. Oshins.
All rights reserved.