Trust Decanting and Divorce

In high asset divorce matters, the division of trust assets can be a significant issue. In complex cases, trust decanting can be an important issue in which parties should be aware of the concept.The purpose of decanting includes the ability to address change in circumstances; protect tax treatment of a trust; modifying administrative provisions, such as restriction on investment powers; granting a beneficiary a special power of appointment; reducing administrative costs; altering trusteeship provisions or appointing fiduciaries; extending the termination date of as trust; converting a non-grantor trust to a grantor trust or the reverse; changing a trust governing law; dividing trust property to create separate trusts or shares; reducing potential liability; converting a trust into a supplemental needs trust; making a trust interest spendthrift or the reverse; and correcting a drafting error without the necessity of going to court.[1]

A trust decanting works in the following manner:

Under a testamentary instrument or inter vivos trust, the Trustee is given the authority to decant for the benefit of one or more of the beneficiaries of the original trust. The trustee may decant or appoint all or part of the first trust assets in favor of a second trust under the original instrument or new instrument. The second trust may have as beneficiaries one or more of the beneficiaries of the first trust who are the proper objects of the exercise under the original instrument. The second trust may also have beneficiaries for whom a distribution of income or principal may have been made in the future from the first trust and may refer to the occurrence of a specific event under the first trust.[2]

If you are going through a high asset or complex divorce in which trust assets are at stake, it is critical to have an attorney in your corner who understands the intricacies of trust assets, including the potential that trust decanting could be an issue in your case.

[1] John Borron, V.A.M.S. 456.4-419 Chapter 456. Trust and Trustees -The Uniform Trust Code Missouri Uniform Trust Code. 4A Mo. Prac., Probate, & Surrogate Laws Manual 456.4-419 (2d ed.) April 2014.

[2] Id.