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Special Needs Planning

A Tool in the Special Needs Toolbox:

By Samantha L. Shepherd, CELA, CAP

What you should know about decanting a special needs trust.


Decanting is a 50-year-old “innovation” in trust law. It has particular appeal in the context of special needs trusts because it allows a trustee to modify a trust for a beneficiary with a disability quickly and inexpensively, and without court approval. The special needs trust created by the modification will not be considered a resource and will enable the continuation of government benefits, such as SSI and Medicaid. The trustee does not suffer the delay of a court process, and the beneficiary is protected.

Decanting is a term often associated with wine. A wine decanter is a glass vessel that is used to hold wine. One pours wine from one vessel to another to filter the wine, or clean the wine, and leaves the sediment behind in the original vessel. The result is a fresh bottle of wine without sediment. In the trust world, decanting is the process of removing undesirable terms from a trust by pouring the trust assets into a new trust. While decanting can result in the creation of a new trust, it can also be accomplished by amending the original trust.

Some History Behind Decanting

Decanting derives from common law. This common law basis for decanting is recognized under court decisions across the country, including Florida, New Jersey, Iowa, and Massachusetts. The door to decanting was opened by the court in Wiedenmayer v. Johnson,1 and it remains an ongoing common law practice in many jurisdictions. This method of non-judicial trust modification is also supported under both the Second and Third Restatements of Property. The Second Restatement of Property compares the trustee’s power to distribute to a new trust to a special power of appointment. The rationale is that if the trustee is able to transfer full legal title to a beneficiary, then the trustee should be able to transfer less than full legal title by transferring the property further in trust. In other words, a trustee who has the discretion to make an outright distribution of trust property to or for the benefit of one or more current beneficiaries of the trust has a special power of appointment over the trust property that allows the trustee to distribute the property to another trust for the benefit of one or more beneficiaries of the trust.

Uniform Trust Decanting Act

In addition to the common law and the support in the Restatements, decanting is increasingly becoming a creature of statute. The Uniform Trust Decanting Act (UTDA) was approved by the Uniform Law Commission in 2015. It provides procedural rules that make the practice of decanting even more appealing to the trustee and to the practitioner advising the trustee. Since then, 12 states have adopted the UTDA, and 23 states have enacted their own statutes, for a total of 35 states currently with a trust decanting statute.

Other Reasons for Decanting a Trust

While special needs trusts are the focus here, there are various reasons for decanting a trust other than protecting the interests of an individual with a disability. Some reasons include:

  • modifying administrative provisions,
  • providing greater asset protection,
  • changing the governing law,
  • adding trust protectors, and
  • correcting drafting errors.

There are also several tax-related uses of decanting, including

  • changing grantor trust status,
  • granting a beneficiary a power of appointment,
  • stretching IRA distributions, and
  • allowing a trust to own S-Corporation stock.

States that have enacted the UTDA or have adopted Section 13 of the UTDA that relates specifically to decanting for special needs trusts, have several highly advantageous provisions for the effective modification of a trust for a special needs beneficiary. Of principal significance, in the UTDA, the existence of a trust beneficiary’s disability does not have to be confirmed by the present receipt of government benefits. It is sufficient that the trustee believes the beneficiary may qualify for government benefits in the future. This important provision reflects the UTDA drafters’ knowledge of the complex situation of the individual with disabilities who has yet to be deemed disabled by a governmental agency but has a need for a special needs trust.

Modifying the Dispositive Provisions

Another advantage to modifying a special needs trust under the UTDA is that the authorized fiduciary may modify the dispositive provisions for the beneficiary with a disability even if the authorized fiduciary has no discretion to make distributions or only discretion over income. A trustee with discretion over income or principal or a trustee with no discretion, but who is required to make mandatory income or principal distributions under the trust terms, may modify the entire trust if the second trust furthers the settlor’s intent.

Not All Trusts Can Be Decanted

That said, not all trusts can be decanted. The trust ideal for decanting is an irrevocable trust in which the trustee has discretionary power to make principal distributions. The trustee’s authority to decant mirrors the authority to distribute principal. For example, if under the original trust the trustee is limited to distributions for health, education, support, or maintenance, the new trust must have the same or substantially similar trustee limitations. The decanting power in these instances is used only to alter administrative provisions, not dispositive provisions. The UTDA makes an extremely important exception for special needs trusts. Even if the trustee does not have discretion over the principal, the UTDA permits the trustee to decant if the decanting will further the purposes of the trust. Maintaining government benefits such as SSI and Medicaid are often vital to the individual with a disability and modifying the trust to preserve those benefits is undoubtedly furthering the purpose of the trust.

Whether or not parties are required to receive notice of decanting, or must consent to a decanting, is another provision that may differ per state decanting statute. In all instances decanting is a non-judicial process that does not require Court approval. Under the UTDA, beneficiary approval is not needed, but qualified beneficiaries are entitled to notice. Qualified beneficiaries are the current beneficiaries and the presumptive remainder beneficiaries. When notice is required, it must be provided 60 days prior to decanting. In addition to qualified beneficiaries, notice must be provided to the settlor, if living, the holders of a power of appointment, anyone who can remove the trustee, and any other trustee (of the first and second trust, if a second trust is created).

Another potential advantage for special needs trust modification under the Uniform Act relates to the structure of the new second trust. The second special needs trust can be a pooled trust authorized under 42 U.S.C. Section 1396p(d)(4)(C) (a D4C Trust), or a first-party trust authorized under 42 U.S.C. Section 1396p(d)(4)(A) (a D4A Trust). The key is that the UTDA does not require the second trust to be a D4C or a D4A, which leaves open the possibility that the new special needs trust could be a supplemental trust that does not contain a payback clause. Other state law may impose a payback requirement, but the UTDA does not.

Decanting continues to gain recognition as a means to modify trusts without judicial involvement. Each year, additional states adopt decanting statutes and modify existing statutes to incorporate portions of the UTDA. Modifying trusts for the benefit of special needs individuals, in particular, continues to gain traction as states address the unique requirements of the special needs trust in the decanting context. 

1 254 A.2d 534 (N.J.Super.A.D. 1969).

About the Author
Samantha L. Shepherd, CELA, CAP, is this issue’s Featured Member. She is the managing attorney at Shepherd Elder Law Group, Overland Park, Kansas.
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