Post by conflict on Oct 25, 2016 1:29:37 GMT 4
Until recently, a party seeking modification of an irrevocable trust
needed approval from all interested parties, or from a court. The last
decade, however, has brought a flood of state legislation authorizing
trust decanting – a process by which a trustee “decants” trust assets
from one vessel (the original irrevocable trust) into a second vessel (a
new trust with terms designed to reflect the settlor’s supposed
intent). Most recently, the Uniform Law Commissioners have, in 2015,
promulgated the Uniform Trust Decanting Act.
Decanting enable
trustees and trust beneficiaries to avoid the cost associated with
judicial modification in cases where the irrevocable trust instrument
included drafting errors or failed to account for unforeseen
circumstances. But the proponents of decanting have largely ignored two
significant issues raised by the decanting movement. First, the
trustee, who may have been selected for reasons other than intimate
knowledge of the settlor’s wishes, is not always in an optimal position
to assess that settlor’s intent. In some cases, agency costs (the
trustee’s own interest in continuing to receive fees) may cloud the
trustee’s judgment about the wisdom of decanting.
Second,
decanting increases the potential for trusts to impose external costs on
taxpayers and creditors. A number of recent innovations in trust law
have expanded asset protection opportunities and enabled creation of
perpetual trusts – innovations that enable trust settlors to avoid taxes
and creditor claims. Trusts created before these doctrinal changes
could not take advantage of these opportunities to impose external
costs. Decanting, however, empowers trustees to obtain tax benefits and
avoid creditors even when the settlor was willing to create the trust
without the inducements provided by modern doctrinal “reform.”
Decanting to impose externalities generates social cost without any
offsetting social benefit.
The paper is from STEWART E. STERK, Yeshiva University - Cardozo Law School
Email: sterk@yu.edu
and will be published in:
Cardozo Law Review, Vol. 38, 2017
Cardozo Legal Studies Research Paper No. 498
needed approval from all interested parties, or from a court. The last
decade, however, has brought a flood of state legislation authorizing
trust decanting – a process by which a trustee “decants” trust assets
from one vessel (the original irrevocable trust) into a second vessel (a
new trust with terms designed to reflect the settlor’s supposed
intent). Most recently, the Uniform Law Commissioners have, in 2015,
promulgated the Uniform Trust Decanting Act.
Decanting enable
trustees and trust beneficiaries to avoid the cost associated with
judicial modification in cases where the irrevocable trust instrument
included drafting errors or failed to account for unforeseen
circumstances. But the proponents of decanting have largely ignored two
significant issues raised by the decanting movement. First, the
trustee, who may have been selected for reasons other than intimate
knowledge of the settlor’s wishes, is not always in an optimal position
to assess that settlor’s intent. In some cases, agency costs (the
trustee’s own interest in continuing to receive fees) may cloud the
trustee’s judgment about the wisdom of decanting.
Second,
decanting increases the potential for trusts to impose external costs on
taxpayers and creditors. A number of recent innovations in trust law
have expanded asset protection opportunities and enabled creation of
perpetual trusts – innovations that enable trust settlors to avoid taxes
and creditor claims. Trusts created before these doctrinal changes
could not take advantage of these opportunities to impose external
costs. Decanting, however, empowers trustees to obtain tax benefits and
avoid creditors even when the settlor was willing to create the trust
without the inducements provided by modern doctrinal “reform.”
Decanting to impose externalities generates social cost without any
offsetting social benefit.
The paper is from STEWART E. STERK, Yeshiva University - Cardozo Law School
Email: sterk@yu.edu
and will be published in:
Cardozo Law Review, Vol. 38, 2017
Cardozo Legal Studies Research Paper No. 498
