Trust decanting is done for several reasons. It may be used to correct drafting errors, add special needs provisions, or to comply with changing tax laws. It may also be used to change trustee provisions or to alter powers of appointment.
Decanting allows a trustee to distribute the assets of one trust to a second trust. However, it can only be done under specific circumstances. The Act applies to irrevocable trusts, other than irrevocable trusts held solely for a charitable purpose.
The Act contains many restrictions on the power to decant, which are designed to protect the beneficiaries and avoid potential tax consequences. In addition, a trustee cannot decant a trust to benefit personally.
This legislation is large and complex. If you have questions about the effect of this law on your trust, please contact your estate planning attorney.
Reference: Colorado Uniform Trust Decanting Act, National Law Review, June 20, 2016.