By: Joseph M. Fiocco, Esq.

                Are you thinking of modifying a Maryland trust?  Maybe you’re grappling with a drafting mistake or facing an unintended tax consequence.  Starting October 1, 2023, estate planners can use the Maryland Trust Decanting Act to come up with more flexible trust drafting and administration solutions.  Decanting a trust refers to a trustee’s power to distribute all or part of a trust’s assets to a second, often very similar, trust.

                Decanting Benefits

                The trustee does not have to obtain the consent of any interested person, but must only provide sixty days’ notice to those persons, including any person who has the power to remove them as trustee.  The Act allows the trustee to distribute assets to more than one trust, including trusts outside of Maryland.  Even if a trustee’s discretion is limited to distributing assets for the sake of a beneficiary’s health, education, maintenance, or support, the trustee’s decanting power extends to all trust assets.  The Act expressly preserves all marital deductions and charitable deductions for estate tax and gift tax purposes, and preserves the ability for gifts to the trust to qualify for the annual gift tax exclusion.  Decanting has the potential for enhanced administrative benefits, since the Act permits splitting fiduciary powers among trustees, trust protectors, guardians, investment advisors, and other professionals.  The Act particularly supports special needs planning, allowing trustees to decant assets into a special needs trust even if the first trust is not a special needs trust.

                Decanting Limitations

                Decanting cannot generally add new beneficiaries or shift the interests of beneficiaries.  Generally, the second trust has to provide for substantially similar interests to the same beneficiaries as the first trust.  If the trustee is dealing with a charitable interest, they must provide the Attorney General notice of the exercise of the decanting power.  Despite not requiring the consent of interested persons, the Act allows interested persons the opportunity to challenge the exercise of the decanting power in court, regardless of whether they do so outside the sixty day notice period.

                Estate planning requires careful consideration, and clear communication of your objectives with those managing your wealth and those who will inherit your wealth.  It is important to coordinate significant trust modifications with your financial advisor, accountant, and estate planning attorney. When considering a trust modification, you should discuss trust decanting with your estate planning attorney.

                If you would like to speak to an attorney about your trust and estate planning needs, please contact Batoff Associates, P.A. at 410-864-6211.