Until recently, irrevocable trust terms were predominantly unalterable, leading to significant problems and headaches when a client’s personal or legal circumstances changed.
On July 1, 2024, Vermont joined many other states by enacting the Uniform Trust Decanting Act (“UTDA”) which allows a metaphorical process of “decanting” to occur. Much like decanting a bottle of wine by pouring it into another vessel, trust decanting allows for the assets of the original trust to be “poured” into another, newly created trust. Subject to some limitations, that new trust may have different terms from the original trust.
Sheehey attorney Mark Melendy was a member of the Vermont Bar Association Probate subcommittee which assisted in the drafting the new law. He recently shared his experience and expertise by speaking on a panel for members of the Vermont Bar Association. Although the new law allows for the potential to change an otherwise irrevocable trust, Mark noted while speaking on the panel that the UTDA includes clear limits on the changes that can be made to trust terms. The specifics will vary with every case, but the overriding principle is that decanting a trust should not override or alter the intentions of the creator of the original trust.
The most significant limitation on the UTDA is that beneficiaries’ shares cannot be reduced or removed. Depending on how much authority the original trust gave to the trustee, there may be further limitations on decanting that need to be determined on a case-by- case basis. Trusts can also be drafted with a provision prohibiting decanting, and in those cases the UTDA cannot be used at all.
There may be good reason to change certain irrevocable trusts terms in the near future. With a new administration entering office and significant tax statutes sunsetting at the end of 2025, tax-related trust terms that were once advantageous could become more of a burden.
Sheehey’s estate planning team has substantial experience in drafting trusts that provide clients with the comfort of knowing their assets will be passed according to their wishes. Attorneys Arline Duffy, Daphne Moritz, Mark Melendy, Walter McCarthy and Addie Cusick-Loecher regularly draft trusts designed to comply with each client’s unique family, health, and financial needs. In this same vein, Sheehey attorneys are available to assist clients in using the UTDA to effectively alter irrevocable trust terms to achieve tax advantages and other benefits.
Whether you have an existing estate plan that needs updating or are wading into this legal area for the first time, our team is happy to assist you. Our estate planning team can navigate the changing estate tax landscape to ensure your assets are distributed to provide maximum financial benefit to your beneficiaries. Get in touch today. Learn more about Sheehey’s team here.
