Decanting A Trust Into A New One

An irrevocable trust drafted decades ago may no longer suit its beneficiaries. Decanting is the technique that lets a trustee move its assets into a newer, better-drafted trust.

The logic behind the power

The argument runs from the trustee's existing discretion. A trustee who may distribute assets outright to a beneficiary can, on this reasoning, distribute them to a trust for that beneficiary instead.

Distributing to a new trust is treated as a lesser act than distributing outright, since the beneficiary receives protection rather than unrestricted cash.

The name comes from the image of pouring wine from one bottle into another, leaving sediment behind. What is left behind is the outdated language.

What decanting is used to fix

Administrative terms age badly. Investment restrictions written for a different era, or a trustee succession scheme with no surviving candidates, can be replaced.

A beneficiary's changed circumstances are another driver. An outright distribution scheduled at a fixed age may be unsuitable if that beneficiary now needs means-tested support.

Trusts are also decanted to change governing jurisdiction, to divide a single trust into separate shares, or to correct drafting that produces unintended tax results.

The limits on what can change

Decanting is not a licence to rewrite. The general principle is that the new trust cannot add beneficiaries who were not already in the original.

Interests that have already vested are typically protected, and a trustee cannot use the power to enlarge their own compensation or discretion without constraint.

Where the trustee's discretion in the original document is narrow rather than broad, the scope for decanting narrows with it.

Process and notice

Most frameworks require the trustee to give beneficiaries advance notice of an intended decanting, with a period in which objections can be raised.

That notice is not a formality. It is the moment a beneficiary can examine whether the new terms genuinely serve them or principally serve the trustee.

Some trustees seek court approval instead of relying on notice alone, particularly where interests are complex or a beneficiary has already objected.

Alternatives worth comparing

Modification by agreement among beneficiaries, judicial reformation, or a non-judicial settlement agreement may achieve the same result with different consequences.

Which route is cleanest depends on who must consent and how contested the change is. Decanting appeals partly because it needs no beneficiary signature.

Statutory decanting authority exists in many jurisdictions and not others, with materially different conditions. This is general information, and a qualified professional should assess any specific trust.