The Tax Consequences of Decanting: A Summary of the Gift, Estate, Income and Generation-Skipping Transfer Tax Considerations when Utilizing Delaware’s Decanting Statute

A typical estate plan often includes the use of one or more irrevocable trusts. However, as a result of the passage of time and change in circumstances, trustees and beneficiaries are often frustrated by the constraints imposed by the trust instrument. Trust law has greatly changed over time and the terms of an existing irrevocable trust agreement may lack the flexibility necessary to adjust to unforeseeable changes in law or other circumstances. Furthermore, the terms of the trust agreement may no longer satisfy the grantor’s intent.

There are several tools that are available to practitioners to amend an irrevocable trust agreement to better fulfill the objectives of the grantor and the beneficiaries. Decanting has become one of the preferred mechanisms for amending irrevocable trusts. The purpose of this outline is to highlight the tax issues to consider when decanting a trust.

Author(s)

Daniel F. Hayward
Director
Gordon, Fournaris & Mammarella, P.A.
Mike Gordon
Director
Gordon, Fournaris & Mammarella, P.A.