Trust Decanting Coming to Maryland – A New Way to Modify Irrevocable Trusts

When most folks hear of “decanting”, they think of wine.

When estate and trust attorneys hear of “decanting”, yes, many of us think about wine, but we also think about an important legal principle.

The Maryland legislature passed a bill that will head to Governor Moore’s desk for signature permitting trust “decanting”.

Decanting is the process where, under limited circumstances, a trustee may exercise discretion and modify the terms of an irrevocable trust.

These limited circumstances generally include where material circumstances have changed such that the terms of the trust as drafted no longer align with the Grantor’s intentions. Using the “decanting” right, a trustee may modify the terms of a trust to ensure that a Grantor’s intentions remain fulfilled.

Additionally, decanting can be used to combine one trust into another trust.

This can be particularly important for both planning clients considering irrevocable trusts, as well as trustees and beneficiaries of irrevocable trusts.

Considerations for Planning Clients

When we speak with clients about irrevocable trusts (trusts which are not susceptible to future amendment), we often discuss the “give and take”. An irrevocable trust can offer a client the “take” of significant tax benefits. In exchange, the client must surrender or “give” flexibility in the future.

Decanting can offer estate planning clients more peace of mind that the use of an irrevocable trust will not bind future beneficiaries to an untenable and unanticipated situation.

Considerations for Trustees and Trust Beneficiaries

In our work advising trustees and beneficiaries, we often find that the client is facing a situation that was not contemplated by the grantor who created the irrevocable trust sometimes many decades ago.

For example, an irrevocable trust might exist for the benefit of a grantor’s descendant who now has significant special needs which were unanticipated at the time the trust was created. Or the irrevocable trust may contemplate an outright distribution to a descendant of the balance of the trust but, for any number of reasons, the beneficiary might receive greater protection if the funds remain in trust and are not distributed.

Decanting will offer trustees and beneficiaries flexibility to adapt trusts to situations that might not have been contemplated several decades prior when a trust was established but make perfect sense now to square with the Grantor’s intentions.

Is Decanting the Only Way to Modify an Irrevocable Trust?

No. Trusts can be modified by a “non-judicial settlement agreement” (an “NJSA”), which is essentially a written agreement signed by the trustee and all of the beneficiaries. However, the scope of an NJSA is significantly less than that which is available in a “decanting”.

Why Is It a Big Deal That Decanting Is Available in Maryland (And When Will It Be Available)?

Simply put, it puts us ahead of the curve. Decanting is not widely available across the United States.

Decanting will be available to Maryland residents later in 2023 when the bill is signed into law.

Bulman Dunie will be updating our trusts for Maryland residents to ensure that we have decanting language in our Maryland trusts so that our clients can take advantage of this important tool.

If you would like to review your estate plan, or if you are the trustee or beneficiary of a trust and feel you could benefit from a discussion about an NJSA or decanting, feel free to reach out to attorney Jeremy Rachlin at (301) 656-1177 x305.