Posts Tagged Trust Decanting
Wills, Trusts & Estates Prof Blog posting by Gerry W. Beyer
In the April 2014 issue of the Estate Analyst, Bob Moshman reviews the growing use the decanting technique for repairing or improving trusts.
He also discusses decanting with attorney Steven J. Oshins, who recently published an extremely useful chart that compares the 22 state statutes on decanting.
1st Annual Trust Decanting State Rankings Chart – by Steven Oshins, PDF
Decantation Deliverance by Robert L. Moshman, Esq., PDF
Posted by: Steven Maimes, The Trust Advisor
Far from locking up the assets until the end of time, irrevocable trust just means the donor can’t reverse the transfer. Beyond that, advisors have plenty of options.
If you’re in that group, view Provident Trust’s free webinar separate fact from fiction. (To View, click HERE)
Some of the country’s top experts on irrevocable trust will be on hand to identify exactly where these “inflexible” instruments can bend and how advisors who can do it end up looking like heroes.
Irrevocable doesn’t mean dead
Whether you’re an attorney, investment advisor, CPA or insurance agent, knowing how to modify an existing irrevocable trust is evidently a significant differentiator.
We polled our readers and 46% of you do indeed think it’s legally impossible to move or even reinvest the funds held in an irrevocable trust, much less change jurisdiction or appoint a new advisor.
When it comes to trust, you’re some the best-educated advisors in the business, so the actual prevalence of misinformation across the industry is probably even higher.
And with those advisors setting the tone for their clients, is it any wonder high-net-worth families are reluctant to take the “irrevocable” step of moving their wealth to a vehicle that is formally outside their control?
They look to you for the plain truth. In this case, that boils down to understanding that while the transfer is irrevocable, the trust documents that state how the property will be used can evolve as circumstances change.
Beneficiaries and trustees can petition for relief from a trust instrument that has become a straitjacket. As long as the proposed changes don’t actively go against the grantor’s expressed wishes, the court has some wiggle room to loosen the belt.
Provisions that pertain to the trust itself – how trustees are appointed and fired, who will invest the assets and how they’ll do it — have been surprisingly simple to override for decades now.
Changing the way the money is spent is trickier but by no means impossible. You only have to look to the king of philanthropic foundations, the Getty Trust, for an example of how a museum can evolve into a global grant-writing institution, with the court’s permission of course.
Your clients aren’t trapped
So if your clients are skittish about surrendering their wealth to a dead hand that can’t adjust to whatever the future has in store, you can reassure them. There’s always time to improve, especially while they’re alive to clarify any vague points in the trust instrument.
If the trust already exists, its parameters aren’t necessarily set in stone.
Decanting techniques can pass the assets into a new trust and take advantage of enhancements that may have emerged in the trust code since the original trust was created.
For example, it is actually possible to redesign an irrevocable trust to turn it into a modern self-settled spendthrift trust — asset protection guru Steve Oshins is a guest on this afternoon’s webinar and will also be available for Q&A.
Decanting can also shift trust assets across jurisdictions, ensuring that wealth is not trapped in a state that might once have looked reasonable but now can’t compete with more attractive laws passed elsewhere in the interim.
The transfer was irrevocable. The assets will remain in trust. But beyond that, there’s plenty of leeway. Tell your clients that and see if they respond more positively the next time you suggest it’s time to consider a trust.
And of course, if they want to make sure the next generation respects their wishes, there are techniques for making the loopholes smaller and the trust documents more truly ironclad.
Meet the star chamber
The webinar has been submitted to the CFA Institute, CFP Board, SCPE and IMCA for an hour of continuing education credit.
Attendees will get to pick Steve Oshins’ brain on asset protection, dynastic trust and just about everything else under the estate planning sun. Those of you who haven’t encountered him know he’s got strong opinions and as a member of the NAEPC Estate Planning Hall of Fame can back them up.
We also have Neil Schoenblum, senior trust advisor at Provident Trust in Las Vegas. He’s already made a splash with many of you with his articles on this subject – one reason we’re running this webinar is that response has been so positive.
Registrations have been brisk, so clearly there’s a lot of hunger out there to learn just how far the “irrevocable” can flex on wealthy families’ behalf.
As a treat, we have Barbara Kotlyar to moderate the discussion. She’s world-class when it comes to matching advisors with solutions to differentiate themselves and communicate their value, and I think this event qualifies.
Once again, to view the webinar, you can click HERE.
Last week, we discussed in Part 1 of this topic how Virginia recently passed several bills that will revise state trust law on July 1, 2012. Today, in Part 2, we will continue our discussion about these changes in the law.
Senate Bill 110 – Trust Decanting Powers
On April 4, Governor McDonnell signed Senate Bill 110 into law. As of July 1, 2012, trusts with decanting powers can be used in Virginia. Virginia is now one of at least 15 states to allow this kind of provision.
What Is a Decanting Power?
This is a power granted in a trust that enables its trustee to transfer all principal and income interests from the original trust to a newly-created, similar trust that serves to take the place of the original trust.
What’s the Big Deal?
Trusts can be revocable (changeable during the lifetime of the settlor) or irrevocable. By design, irrevocable trusts are intentionally very difficult to modify, even if common sense would dictate a change, so that the original purposes and desires of the settlor are protected. Decanting powers are essentially an end run around this problem.
A trust with decanting powers includes language that enables the trustee to transfer assets out of one trust into a second, similar trust that maintains the “spirit” of the original trust. This is done so that the terms of the original trust can be modernized and/or create less administrative hassle for the trustee, thereby creating more flexibility in an otherwise unchangeable situation.
Attorneys Anne Marie Levin and Todd A. Flubacher of Morris, Nichols, Arsht & Tunnell, LLP in Wilmington, Delaware recently wrote this article describing state decanting statutes. They include several scenarios where the inclusion of decanting powers in the original trust would be quite useful, because the powers would enable the trustee to adjust for future changed circumstances:
- A beneficiary has special needs – the original trust would help the beneficiary a great deal more if it were a special needs trust.
- The original trust does not provide for transfers of the trust to a new jurisdiction with more favorable laws.
- The original trust does not provide for a trustee to resign or be replaced.
- The original trust has errors.
At this point in time, it appears as if the majority of states still find that such powers create too much flexibility for these trusts to be able to maintain the facade of irrevocability. However, Virginia residents will now how this option available to them.
Senate Bill 180 – Directed Trustees
On April 4, Governor McConnell also signed Senate Bill 180 into law. As of July 1, 2012, trustees can now be protected against liability if they follow the directions of specifically named “trust directors”, “trust protectors”, or “trust advisors” in Virginia. See this post from McGuireWoods LLP for further details on SB 180.
What Are Trust Directors / Protectors / Advisors?
These are individuals or organizations named in the trust document to either oversee or advise the primary trustee on specified aspects of running the trust. In general, they are specifically named in the trust to help advise the named primary trustee, who may lack enough experience or expertise to run the trust effectively. They are also named to help provide the primary trustee with an unbiased viewpoint, and can even be given the power to “break ties” between disputing trustees.
What’s the Big Deal?
If this new law is specifically referenced in a trust, the primary trustee can avoid personal responsibility for any breaches of fiduciary duty by the trust director. In other words, the person you appoint as your primary trustee will not be held liable for any illegalities or acts of bad faith performed by anyone else you name to guide or direct your trustee.
For example, let’s say you name Joe as primary trustee of your new trust and also name ABC Bank as the trust director to run the trust’s investments. Over time, Mary, the ABC Bank representative who oversees your trust, embezzles hundreds of thousands of dollars. Before Joe discovers any problem, Mary moves to a foreign island country in the Caribbean, never to be heard from again. If your trust references the new Virginia law on directed trustees (i.e. lists the specific Code section in the document), then even though Joe is the primary trustee, he would be personally protected from liability for ABC Bank’s negligence, fraud, irresponsibility, etc.
So obviously, this new law presumably will increase the chances that the person you name as trustee will even take the job.
Can These Updates Help You?
Asset protection trusts, trust decanting powers and liability protection for following the lead of a directed trustee represent some of the new directions in trust law that have developed over the last decade. Including these provisions in your own estate planning documents can be of great use.
On the other hand, because these new rules lack the hundreds of years of legal precedent standing behind it, we still may experience some growing pains as we begin to implement them in our own documents.
Therefore, be sure to take great care if you begin including these rules in your own trusts in the immediate future.
Source: The Zucker Law Firm
Posted by Steven Maimes, The Trust Advisor