New Illinois decanting statute allows trustees to fix some trust problems

I have a confession to make:  I am not a wine connoisseur.  There are a few wines that I enjoy, but my taste palate for wine is not very broad.

Even so, I occasionally end up discussing wine with our clients because of the concept of decanting.  Decanting is the practice of pouring wine into another container before serving it.  This is done to expose the wine to air, refreshing its flavor.  Or so I am told.

The same concept exists in trusts and estates.  Over time, a trust may not do everything it needs to do, which can be a problem if the trust is irrevocable (because, for example, the creator of the trust has passed away).  At times like this, we turn to decanting.

Decanting a trust allows the trust assets to be “poured” from one trust into another trust.  The newer trust can be designed to fix some of the problems found in the original trust.

A great example of the usefulness of decanting is in the case of special needs beneficiaries.  We often see cases where someone passes away and leaves an inheritance to a special needs relative in a general needs trust.  The problem is that, for benefits purposes, a general needs trust is treated the same as an asset of the beneficiary.  The result can be a loss of benefits for the special needs individual.

In an attempt to address this problem (and others), Illinois recently passed a law amending the Trusts and Trustees Act (Public Act 097-0920).  The new law allows trustees to decant most trusts, whether or not the trust includes the right language.

Under the new law, a general needs trust can be “poured” into a new special needs trust for the same beneficiary.  The essential parameters of the trust aren’t changed.  The trustee, beneficiary, and remainder beneficiaries are all the same.  But the special needs individual won’t lose access to their benefits

The decanted trust works better, just like decanted wine.  Same wine, but better tasting.

Of course, a special needs beneficiary is just one use for trust decanting.  But it’s good to know that Illinois has joined the list of states that allow trustees to “freshen” trusts through the use of decanting.

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