Not all trusts age like fine wine. Family situations change, tax laws are updated, and an irrevocable trust created years ago may no longer be ideal for today’s circumstances. In the world of trusts and estates, there is a concept where the assets in an existing trust may be “decanted” into a new trust with better, more appropriate provisions. The term for this notion comes from the practice of decanting wine where the wine is poured from one vessel into a decanter to separate and remove sediment particles and other impurities.
In Connecticut, this concept is now a reality. In July 2024, the Connecticut legislature passed the Connecticut Uniform Trust Decanting Act (the “Act”) which allows Connecticut irrevocable trusts to be decanted under certain situations. The Act became effective on January 1, 2025, and applies to most trusts, even those created prior to the effective date. Connecticut follows several other states that have adopted similar statutes.
Previously, it was unclear whether a Connecticut irrevocable trust could be decanted, and there were no formal rules or guidelines. Additionally, it was somewhat difficult and costly to make substantive changes to an irrevocable trust under existing Connecticut law. Changing an irrevocable trust required the consent of all of the beneficiaries of the trust, the approval of the Probate Court, and a finding by the Probate Court that the change is not inconsistent with a material purpose of the trust.
The Act allows for an easier route to make changes to an irrevocable trust. Under the Act, the trustee of the trust may decant the assets in an existing trust into a new trust with new terms. For this to happen, the trustee must have the discretionary power to make distributions of the principal of the trust. Otherwise, under the Act, the trustee is not required to obtain Probate Court approval to decant the trust (so long as it is not a testamentary trust), and the beneficiaries merely need notice of the action. However, the trustee’s exercise of the power to decant the trust is not unchecked, as the trustee must act in line with their fiduciary duties.
The Act sets out numerous other rules for decanting Connecticut trusts, such as creating guidelines that the new trust must follow, setting standards for decanting special needs trusts, setting limits on the decanting power, protecting trustees from liability for reasonably relying on a prior decanting, and granting the authority for Probate Courts to oversee decanting matters when a testamentary trust is involved or if a trustee chooses to request approval.
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