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How decanted trusts work

Decanting a trust refers to creating a second trust to revise the terms of an irrevocable trust. Under the original terms of an irrevocable trust, the assets are moved completely out of the control of the grantor and the trust cannot be altered or canceled. However, 25 states now allow decanting of an irrevocable trust, and Colorado is one of them.

There are several reasons why it might be necessary to decant an irrevocable trust. The trust could be set up to distribute payments to the beneficiary at certain ages. If a beneficiary's life situation changes because of bankruptcy, divorce or addiction, the trust may need to be altered. The trustee might then create a second trust in which they have the discretion to distribute payments to the beneficiary.

An irrevocable trust might also be changed if trusts need to be separated or combined or if the grantor decides to give a beneficiary appointment powers. If the original trust is unclear or has mistakes that need to be corrected in a new document, decanting could solve the problem. In some cases, it might be possible to make these alterations without notifying beneficiaries.

Trusts can be a powerful tool in an estate plan, and while people with many assets may use them to avoid estate taxes, they are not just for wealthy families. With a trust, there is more privacy about the estate plan and assets are distributed more quickly without the necessity of going through probate. Trusts can be set up for charitable purposes or to manage money for beneficiaries who may be irresponsible. They can also be established to care for a person with special needs. An estate holder may want to discuss the possibilities of a trust with an attorney.

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