If you establish a Revocable Living Trust, you are able to make updates as things in your life change. But what happens if you pass away and then things change, or you were not able to make changes prior to passing? In general, your Revocable Trust becomes irrevocable upon your passing, meaning no changes can be made. This can cause a problem if there is a change to your beneficiaries circumstances, changes in the law, or for some other reason your plan became outdated. This is where Maryland’s new Trust Decanting Act can address those problems. Below are three key features which went into effect October 1, 2023.
- Decanting is the process of distributing assets from one trust to another trust as a result of a change in circumstances. Examples of changes that could require decanting are changes in the law, modifying the ages for distribution to a beneficiary, changing or adding successor trustees, adding special needs protections for a disabled beneficiary and others. However, this does not relieve a fiduciary from liability for a breach of their duty to act in the best interests of a beneficiary. In addition, there are formalities that a trustee needs to follow, such as notice and written obligations.
- Your Trust can allow OR disallow decanting. It is important for you to decide how strict you want to make your trust. Your trust should contain what your wishes are and if you want to allow flexibility for your trust to be changed or not. This needs to be done carefully as there could be things you want flexibility on (changes in the law) and things you do not want flexibility on. If you do not decide one way or the other, then a provision stating your trust is irrevocable upon your death is not enough to restrict or prohibit changes to your trust by means of decanting.
- If decanting occurs, notice is required – NOT consent. If one is able to change an irrevocable trust by using a non-judicial settlement agreement, all interested persons must consent (i.e. agree) to that change. However, with the new decanting law, an irrevocable trust can be changed by providing notice to each qualified beneficiary. This means that not each qualified beneficiary needs to necessarily agree to the change as would be the case with a non-judicial settlement agreement.
So what are key takeaways from this new law?
- First, you should revisit your estate plan. You might not want your trustee to be able to make changes after your death (or maybe you do want your trustee to have this flexibility). This decision should be discussed with your estate planning attorney.
- Second, you should consider who you have as your trustee. On one hand decanting allows for more flexibility. However on the other hand, it can impose additional fiduciary duties and obligations on a trustee. Your trustee, as the fiduciary, must act in the best interest of the beneficiaries. As a result of Maryland’s Trust Decanting Act, the trustee must ask, if I create a whole new trust, does that better serve the interest of the beneficiaries? There are many different types of trusts that can be created to help when it comes to changes in the law, taxes, and others. The trustee needs to have a good understanding of those rules to act in the best interest of the beneficiaries.
If you have any questions about this new update and how it may affect your estate plan, contact our office today!