You May Be Able to Modify an Irrevocable Trust by Patricia Giarratano, CPA
Over the past few years, many high-net-worth family matriarchs and patriarchs rightfully accelerated their gift-giving strategies to reduce the value of their taxable estates in anticipation of a scheduled halving of the estate tax exemption at the end of 2025. However, with the enactment of the One Big Beautiful Bill Act (OBBBA) in July 2025 and the preservation of very generous lifetime exemptions of $15 million per person ($30 million per married couple filing jointly) as of January 1, 2026, many families may regret their decisions.
The good news is that more than 35 states, including Florida and New York, have laws allowing trustees to alter irrevocable trusts through the practice of “decanting,” or legally pouring the assets of the original irrevocable trust into a new trust. While decanting is neither intended to change the objectives of the grantor who established the trust nor to cater to the frivolous desires of beneficiaries, it does provide trustees with greater flexibility to adjust and improve the trust’s terms to address changing circumstances.
When to Consider Decanting a Trust
A grantor who established an irrevocable trust several decades ago probably did not anticipate the full range of potential scenarios and issues that could occur in the future. Over time, tax laws change along with beneficiaries’ unique circumstances.
For example, if the state where a grantor originally established a trust no longer offers the same level of asset protection it previously did, trustees may be able to decant the trust and move it to a different jurisdiction, including one without state income tax. However, trustees must be careful of long-arm statutes in some states that will continue to tax the trust even after changes in jurisdiction or residency rules that govern taxes based on the grantor’s state of residence.
Alternatively, consider a beneficiary who is embroiled in a contentious divorce proceeding or another situation that compromises their ability to use trust assets. Under these circumstances, a trustee may decide it is in the best interest of the trust and its beneficiaries to modify the timing of distributions. The same holds true for significant distributions planned for minor children. By decanting the trust, trustees can more easily accommodate beneficiaries’ changing circumstances without negating the grantor’s original intentions.
Other reasons for decanting an irrevocable trust include extending the termination date, creating a dynasty trust for future generations, terminating trustees, reducing administrative costs and dividing trust property to create separate trusts.
When Decanting a Trust May Not Make Sense
While the reasons for decanting are numerous, there are situations in which doing so is neither beneficial nor permissible. For example, some trusts include specific language that prevents the decanting of assets or precludes trustees from having the power to distribute principal from the trusts. Moreover, trustees and beneficiaries must assess a decanting’s legal, tax and reporting consequences, including whether it results in a taxable gain and whether tax attributes (such as net operating loss carryovers) transfer with trust assets.
No one can predict how an irrevocable trust will impact its beneficiaries in the future. Grantors can merely assess the situation based on the circumstances and laws applicable at the time of settlement and create trusts they hope will benefit their beneficiaries in the manner they desire. It behooves grantors, trustees and beneficiaries to proceed carefully under the guidance of experienced financial and legal professionals before acting.
About the Author: Patricia Giarratano, CPA, is a managing director of Tax and Wealth with Baker Tilly x Berkowitz Pollack Brant, where she works with high-net-worth clients and business owners to develop comprehensive, tax-efficient estate, trust, gift tax and income plans. She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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