Patriot’s owner Robert Kraft can teach us a thing or two about Decanting Trusts
In 1982, Robert Kraft and his wife, Myra, created an irrevocable trust for the benefit of his four children. The trust was managed by an attorney (a disinterested trustee).
In 2012, the attorney-trustee wanted to retire and circumstances had changed a bit since 1982, so they decided to create four new separate trusts for the benefit of each child, in which the children (who by then were grown adults) would serve as trustees of their own trusts.
This act of shifting assets from one irrevocable trust into another trust is known as trust decanting.
The question before the court was whether a trustee could move trust’s assets to a new trust without the consent or approval of the beneficiaries or the court.
The answer is yes, and here’s some of the main reasons why:
The 1982 trust expressly stated that the trustee may exercise his "full power" and "discretion," "without order or license of court”
The 1982 trust expressly excluded beneficiaries from participation in distribution decisions
Robert Kraft, principal draftsman Gordon Ehrlich, and the disinterested trustee all submitted affidavits to the effect that they intended the 1982 trust to allow distributions to new trusts without the consent or approval of any beneficiary or court.
The trustee could make distributions to or for the benefit of a child, meaning the money didn’t have to go directly to the child but could be applied indirectly - e.g, by making payments to a third-party for services provided to the child so long it was in the best interest of the child to make such distribution (remember, trustees are fiduciaries and generally must act in the best interest of the beneficiaries).
For specific case text, please visit: http://masscases.com/cases/sjc/466/466mass92.html
So what does this mean for you and your family? What’s the key takeaway?
You can now create another trust to indirectly modify the terms of an existing irrevocable trust through the use of trust decanting so long as the trust expressly allows such decanting, the trustee has broad discretion to do such decanting, and it is in the best interest of the beneficiary.
This can be particularly powerful when there is a change in circumstance that makes your existing irrevocable trust outdated - for example, if your child is getting divorced and the existing irrevocable trust doesn’t properly protect his interests or your original intentions.
Please note: Massachusetts is relying on common law at the moment for trust decanting, meaning you have to look for case law to make sure you are doing trust decanting properly in this state. It is our hope that the Massachusetts legislature will eventually create a statute providing specific legal guidance on how to incorporate trust decanting into your irrevocable trust. There is also an array of tax implications in doing trust decanting that are well outside the scope of this article.
So, if you plan to do an irrevocable trust, make sure to speak with your attorney about trust decanting.
Interested in creating your own estate plan, will, or trust? Give me a call at 781 202 6368 or email me at jlento@perennialtrust.com to schedule your free personal consultation.
I’m always happy to help,
Joseph M. Lento, JD
Your local estate planning attorney.
Perennial Estate Planning
477 Main Street
Stoneham, MA 02180
Wills and Trusts to protect your family’s future and give you peace of mind.
