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Trust Decanting - Update by Courtney Kelley - Gavel to Gavel, Journal Record

March 1, 2018

By: Courtney L. Kelley

Journal Record

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In March 2017, I wrote about trust decanting. I pointed out that Oklahoma currently lacks a decanting statute, and current Oklahoma trust law raises issues with engaging in decanting. Since then, Sen. Julie Daniels, R-Bartlesville introduced Senate Bill 1018, which would enact the Oklahoma Decanting Act. Drafted by a group of Oklahoma attorneys who practice trust law, this act is modeled on a similar statute in Texas, but modified to fit the particulars of Oklahoma laws and jurisprudence regarding trusts – such as being protective of beneficiaries. 

“Decanting” is a technique that permits a trustee to make certain modifications to an irrevocable trust by pouring the assets of one trust into another trust. The ultimate goal of decanting statutes is to allow a trustee to reform an irrevocable trust within reasonable limits to ensure the trust will achieve the settlor’s original intent. The new trust might be used to achieve better tax treatment, address issues regarding investment authority, or allow the appointment of a new trustee not otherwise allowed by the original trust instrument.

When decanting, attorneys must be careful to remain true to the settlor’s intent and avoid unduly enlarging the discretion granted to trustees.  Among other things, trustees must be careful to avoid the IRS’s rules for taxation of gifts.  Without proper care, the movement of trust assets into a new trust could trigger a tax event.

Senate Bill 1080 addresses these issues.  The bill is modeled on Texas law, which is more favorable to beneficiaries than the Uniform Laws Commission’s decanting statute. The bill would require distribution standards to remain the same if the trustee’s discretion is limited. The proposed statute would require a 90-day notice to beneficiaries before the decanting would take effect. If a beneficiary objects, then the trustee would be required to obtain court approval before decanting the trust. A number of trust and estate attorneys from around the state fully debated these beneficiary protections before recommending the proposed statute.

Unfortunately, Senate Bill 1080 appears to have stalled in the Senate Judiciary Committee.  The bill was assigned to the Judiciary Committee on February 6.  The Judiciary Committee held what appears to be its last meeting this session on February 27.  Senate Bill 1080 was not on the agenda.

The bill’s proponents remain optimistic that decanting would be a good move for Oklahoma trust law, and that the proposal might gain more traction at some later date.