Decanting Your Irrevocable Trust in California

In California, irrevocable trusts can now be modified through a process called decanting, thanks to the 2019 Uniform Trust Decanting Act. Trustees can shift assets into a new trust with revised terms under specific rules, enhancing flexibility in estate planning—though legal guidance is crucial to navigate limitations and compliance.

Main Points:

• Irrevocable trusts were traditionally difficult to change in California.
• The Uniform Trust Decanting Act (UTDA) took effect in 2019, allowing trustees to decant.
• Decanting involves moving assets to a new trust with updated terms.
• Trustees’ decanting powers vary based on their discretion level and the terms of the trust.
• Notification requirements apply to beneficiaries, grantors, and other involved parties.
• Some trust features, like beneficiaries and tax status, cannot be altered.
• Certain trusts, especially charitable ones, may be excluded from decanting.
• Legal advice is essential due to complexity and potential challenges.

For many, trusts are an essential element of estate planning. They protect crucial assets from the complications of probate, so your loved ones and any other beneficiaries can access them more easily.

When you set up an irrevocable trust, it’s usually with the intent never to change any of the terms. By creating your trust this way, you can recoup certain benefits and be sure that the conditions are fixed. This contrasts with a revocable trust, which you can change as the grantor or settlor, or the creator at any point in your lifetime.)

But what can you do if you or the beneficiaries experience changes to your circumstances that make an irrevocable, unchangeable trust less advantageous? For California residents, there may be an option to change the trust terms in a process known as “decanting”. Here is what you need to know about decanting your California irrevocable trust.

How an Irrevocable Trust in California Works

In California, trusts are often used to protect assets and preserve benefits for the trust’s grantor and their named beneficiaries. They’re managed by the trustee (but anyone permitted under state law can be the trustee and rarely is an experienced estate planning attorney the trustee).

Making an irrevocable living trust in California can permit the grantor to secure the assets of even a large or otherwise complex estate, while avoiding probate and minimizing tax liability.

As the name implies, an irrevocable trust is meant to be unchangeable after the arrangement is finalized. Because of this, until 2019, Californians who wanted to change their irrevocable trusts had to go through complicated steps – and these were not always guaranteed to achieve the desired result. Under older California irrevocable trust law, a trustee or grantor needed the following to alter this legal document:

• The consent of all beneficiaries (and the grantor, if changes were the trustee’s idea).
• A court ruling allowing changes to the trust, presumably stemming from a petition by the trustee, grantor, and/or beneficiaries.
• Language in the original California irrevocable trust that permitted changes to the arrangement. (Because such a caveat runs counter to the principle of an irrevocable trust, this could easily come under legal scrutiny if any party involved didn’t approve.)

Can an Irrevocable Trust Be Changed in California?

Yes, though this is a fairly recent development.

California passed the Uniform Trust Decanting Act in September 2018, and it took effect January 2019. The law permits changes to irrevocable trusts if the trustee moves assets affected by their modifications from the original trust into a new one. (Given how the process works and considering California’s status as one of the world’s major winemaking regions, the law’s name makes perfect sense.)

In some instances, under the UTDA, the trustee does not need to seek approval from any beneficiaries, the grantor, or California courts to make their changes. This adds considerable flexibility to trust-related aspects of the estate planning process.

Decanting a California Irrevocable Trust

Under the new law, an irrevocable living trust in California can be changed or “decanted” even though it is irrevocable. Decanting means moving certain trust assets into another trust, one with new terms that reflect how the trustee wants the original trust to be changed.

This development does not mean all trust terms can be amended, however. The power to decant follows the amount of discretion conveyed initially by the trust. For example:

• A trustee with expanded distributive discretion can modify both administrative and dispositive trust provisions. These include the distribution of assets, powers of appointment, the duration of a trust’s terms, and more.
• By contrast, trustees designated as having limited distributive discretion can only decant assets to change their distribution if doing so would benefit the health, education, maintenance, or support of one or more beneficiaries. They cannot make any changes to the trust’s dispositive provisions, but are allowed to alter trustee powers or provisions regarding successor trustees.

A trustee looking to decant a California irrevocable trust must notify multiple parties at least 60 days before they make their intended changes:

• The grantor
• All beneficiaries
• Any co-trustees of the original trust and the new trust’s co-trustees
• Anyone with active power of appointment over the original trust
• Anyone (aside from those already named) who can dismiss the trustee based on the original trust’s conditions
• The office of the California Attorney General (if the trust contains assets designated for charitable distribution)

The notices provided to these parties must explain that they have a right to contest the planned decanting, which they can do with the 60-day (or greater) interim period.

Limitations of the Decanting Process

Certain aspects of irrevocable trusts remain unchangeable regardless of a trustee’s powers. For example, they can’t add or eliminate beneficiaries to the old or new trust. They’re also forbidden from making any changes through decanting that would put the original trust’s tax benefits at risk.

Further, some irrevocable trusts in California can’t be decanted at all. The most common example is any trust solely intended to benefit charitable organizations or causes. (In a multi-asset trust with some charitable interests, those assets can’t be altered but others can be decanted.) Also, if the trust contains any language specifically forbidding the decantation of its assets, there’s no way around that.

Trust Alice A. Salvo Law for All Your Trust Needs

Overall, it’s good that outdated irrevocable trusts with provisions that don’t make sense in the context of decay aren’t necessarily permanent as they once were under California law. Depending on your circumstances, you may have multiple options for decanting.

However, as we have shown, this area of the law is complex. Even if you’re the trustee or grantor, the decanting process isn’t anything to approach without experienced legal counsel by your side.

At the Law Offices of Alice A. Salvo, we have experience creating and decanting California irrevocable trusts and can help evaluate your options. Schedule a consultation by calling 818-676-9572 today or use the contact form at the bottom of this page to start exploring solutions to any trusts you have issues with.