An irrevocable trust is known for its permanency, which comes with some very specific benefits. These include protections from your creditors and possibly tax reduction benefits. These trusts are often designed to last for decades, but life’s circumstances and state laws can change during that time.
There may come a point when the terms of the trust aren’t serving the original purpose of the trust. At this point, the trustee who’s over the trust may decide that they need to decant the trust. This means that they can update or improve the terms of the existing trust by transferring assets into a new trust with modified provisions.
Ohio law has specifications for decanting a trust
Under Ohio Revised Code § 5808.18, a trustee with discretionary distribution authority may decant a trust, but only if certain conditions are met. The idea is similar to decanting wine, which involves moving the contents from one container to another to improve the outcome. In this case, the trust’s assets remain in the trustee’s care, but the rules regarding how they’re managed or distributed are refined.
Reasons to decant a trust might include:
- Updating administrative provisions because of changes in tax law
- Extending or modifying the terms of a beneficiary’s interest
- Adjusting distribution standards for improved asset protection
- Clarifying vague language to relay intended information
- Correcting drafting errors to reflect the creator’s wishes
- Consolidating multiple trusts for administrative ease
State law doesn’t allow trustees free rein when they’re decanting a trust. For example, they can’t add new beneficiaries or reduce fixed income interest. Additionally, there is a requirement to provide at least 60 days’ notice to co-trustees, beneficiaries and the settlor.
Decanting can be a valuable tool when a trust no longer meets the needs it was designed for. Since the rules are specific and the stakes can be high, it’s wise to work with someone who understands Ohio trust law and can help you navigate the process smoothly.
