What You Need To Know About California’s New Decanting Statute
In September of 2018, the California Legislature enacted the Uniform Trust Decanting Act. Decanting is defined as the ability of someone to distribute property from an irrevocable trust (“the first trust”) to one or more second trusts or to modify the terms of the first trust without the consent of the beneficiaries of the first trust or approval of the court. California’s new decanting statute is highly technical, replete with definitions, terms and standards, among the most significant being the ability to decant without court or beneficiary approval. Key provisions of the statute require a 60-day notice period and the requirement of a “fiduciary” to exercise the decanting powers in accordance with its fiduciary duties.
It is likely decanting will for a variety of reasons only occur in rare cases. For example, the fiduciary duty extends beyond the limitations period set forth in the statute. Thus, even when notice to decant is given within the appropriate time period and no objection is made, a claim that a fiduciary duty was breached can still be made later. It is therefore possible that the decanting statute may cause an increase in breach of fiduciary duty claims.
The official notice of decanting is also especially complex as it pertains to future born children. California does not have a virtual representation statute detailing that a person’s interest can be outlined as virtual to his or her unborn children’s interest. As a result, notifying minors about decanting or accepting a minor’s consent regarding the notice is not a straightforward process. To properly decant, a guardian has to be appointed when it involves children because a simple notification to the parents in the case of minors is not sufficient and can be contested. When minors are involved the court must be petitioned to assign a guardian and these additional tasks can prove daunting.
Under the new statute, decanting is most likely to take place when a trustee has complete discretionary authority to distribute assets to one or more beneficiaries. Most trusts, however, do not have truly discretionary standards and instead provide for the health, education, maintenance and support of the beneficiary. The statute will therefore likely be used to decant only in the most benign circumstances.
If you have more concerns or additional questions about decanting, please call our office at 626.568.9300.