When most people think of estate planning, they picture wills, trusts, and powers of attorney. But estate law is not static; circumstances change, family needs shift, and tax laws evolve. That’s where an advanced planning tool called trust decanting comes in. If you’ve created a trust in Maryland and later discover that it no longer meets your goals, trust decanting may allow you to “pour” the assets into a new trust with updated terms.
At Blackford & Flohr, our estate planning attorneys serving Baltimore, Annapolis, and the surrounding areas help individuals and families understand when trust decanting is appropriate and how it can strengthen long-term financial planning.
What Is Trust Decanting?
The term “decanting” comes from wine: you pour wine from one bottle into another to separate it from sediment. Similarly, trust decanting involves transferring assets from an old trust into a new trust with revised terms.
In Maryland, trust decanting is governed by state trust law and the Maryland Trust Act, which outline the trustee’s powers and fiduciary duties. Not every trust qualifies for decanting, and not every trustee has authority to take this step. That’s why professional guidance from an experienced Maryland trust attorney is essential.
Why Trust Decanting Matters in Estate Planning
Trusts are often created with the best intentions, but circumstances change. Families grow, tax laws shift, or new opportunities for asset protection emerge. Rather than being locked into outdated provisions, trust decanting offers flexibility to modernize your estate plan.
Common Reasons to Decant a Trust:
- Updating outdated terms: Modify provisions that no longer make sense for your family.
- Adding or removing beneficiaries: Address marriages, divorces, new children, or estrangements.
- Tax efficiency: Adapt to changes in federal or Maryland estate tax laws.
- Protecting beneficiaries: Strengthen protections against creditors, lawsuits, or divorce settlements.
- Clarifying trustee powers: Define or expand the trustee’s role to reduce conflict or improve administration.
- Special needs planning: Convert an existing trust into a special needs trust for a disabled beneficiary.
- Simplification: Consolidate multiple trusts into a single, more manageable trust.
Trust Decanting in Maryland: The Legal Framework
Maryland has specific statutes that govern how trusts can be modified or decanted. While some states offer broad statutory decanting authority, Maryland places careful limits on when and how trustees may exercise this power. In general, only trustees with discretionary distribution powers are permitted to decant, and they must always uphold their fiduciary duty to act in the best interest of the beneficiaries. In certain cases, petitioning the Circuit Court may be required to approve or oversee the decanting process.
Additionally, Maryland law often requires that beneficiaries be notified, ensuring transparency and fairness throughout the process. These legal requirements can be nuanced, and any misstep could lead to disputes or even litigation. Because of this complexity, working with an experienced Maryland estate planning lawyer in Annapolis or Baltimore is critical to ensuring compliance and protecting your family’s interests.
Alternatives to Trust Decanting
While trust decanting is powerful, it is not the only way to update or modify a trust in Maryland. Depending on the situation, alternatives may include:
- Trust modification by agreement (if all beneficiaries consent).
- Judicial modification through the Maryland courts.
- Termination of a trust if it no longer serves a purpose.
- Amendment provisions built into the original trust document.
An experienced wills and trusts attorney will review all available options before recommending trust decanting.
When Does Trust Decanting Make Sense?
Trust decanting is not appropriate in every case. Situations where it often makes sense include:
- The trust is irrevocable but outdated
Irrevocable trusts are meant to be permanent, but decanting may provide a lawful way to update them. - Beneficiary needs have changed
Perhaps a child has developed special needs, or a grandchild was born after the original trust was created. - Asset protection concerns
Decanting can strengthen protections against creditors or lawsuits, especially for high-net-worth individuals in Maryland. - Tax law changes
Estate and gift tax thresholds shift frequently. Decanting can help ensure your trust structure remains tax-efficient. - Administrative issues
If the original trust language is unclear or cumbersome, a new trust can streamline management and reduce costs.
Benefits of Trust Decanting in Maryland
One of the most valuable aspects of trust decanting is the flexibility it provides. Families often discover that circumstances have changed significantly since their trust was first created; children grow up, beneficiaries marry or divorce, tax laws shift, or long-term financial goals evolve. Decanting allows a trustee to respond to these changes without dismantling the entire structure.
Continuity is another major advantage. Instead of terminating the original trust and starting from scratch, which could be time-consuming and disruptive, decanting allows for a smooth transfer of assets into a newly drafted trust with updated terms. Decanting also increases efficiency, as it may allow families to bypass lengthy court modification proceedings.
Decanting also enhances protection for beneficiaries by strengthening safeguards against creditors, lawsuits, or even divorce settlements. In addition, trustees gain improved control and flexibility in managing trust assets, making it easier to address unique family circumstances.
Potential Drawbacks and Risks
Despite its benefits, trust decanting is not always simple, and there are several risks families should carefully weigh before pursuing this strategy. Some of the most important potential drawbacks include:
- Beneficiary disputes: Decanting can create tension if beneficiaries feel their rights or expected distributions are being changed without their consent. Even if the trustee acts within their legal authority, beneficiaries may challenge the process in court, which can lead to costly and emotionally draining litigation.
- Tax consequences: If the new trust is not properly structured, decanting may inadvertently trigger income, gift, or estate tax liabilities. For example, moving assets into a trust with different terms could change how distributions are taxed or expose the estate to penalties.
- Litigation risk for trustees: Trustees who overstep their authority or misinterpret their powers when decanting face potential lawsuits from beneficiaries. A claim of breaching fiduciary duty can result in personal liability, financial penalties, and reputational harm.
- Complexity of the process: Maryland law imposes strict rules on trustee authority, notice requirements, and in some cases, court approval. A trustee acting without skilled legal guidance may unintentionally violate these rules, leading to an invalid transfer or legal challenges down the road.
- Loss of original intent: While decanting is meant to modernize a trust, it can sometimes move too far from the grantor’s original intentions. If beneficiaries believe the trustee’s decisions stray from what the grantor wanted, disputes and challenges are more likely.
- Costs of legal and professional services: Trust decanting usually requires the assistance of attorneys, financial advisors, and tax professionals. While these costs are necessary to ensure compliance and accuracy, they can add up quickly.
Trust Decanting vs. Creating a New Trust
It’s natural to wonder why you would not simply create a new trust instead of going through the process of decanting. While creating a new trust is sometimes the right solution, decanting provides unique advantages that make it the preferred option in certain situations. One of the key differences is that decanting preserves the continuity of the original trust. Assets are not dissolved and redistributed from scratch, but rather transferred seamlessly into a new trust vehicle with updated terms. This approach allows the trust to maintain important legal and financial characteristics that may have been established under the original agreement.
Another advantage of decanting over creating a new trust is the potential preservation of tax benefits. Depending on how the original trust was structured, certain estate or income tax advantages may be tied to that trust. Starting a brand-new trust could risk losing those benefits or create exposure to additional tax liability. Decanting helps mitigate those risks by keeping the original trust’s tax identity intact while still modernizing its terms. In addition, decanting avoids disrupting existing legal arrangements, such as contracts, property titles, or ongoing business interests held in the trust.
That being said, there are circumstances where drafting an entirely new trust may make more sense, particularly if the original trust is too restrictive, lacks necessary provisions, or cannot be decanted under Maryland law. A Maryland trust lawyer can carefully review your existing trust, your family’s financial goals, and your long-term estate plan to help determine whether trust decanting or creating a new trust is the better strategy.
How Blackford & Flohr Can Help
At Blackford & Flohr, we provide comprehensive estate planning services, including:
- Drafting wills and trusts
- Reviewing and updating existing trusts
- Advising on special needs planning
- Handling probate and trust administration
- Counseling on tax-efficient estate strategies
Our attorneys understand the unique estate planning needs of Maryland families in Baltimore, Annapolis, and surrounding counties. We will carefully evaluate your trust, explain your options, and guide you through the decanting process if it makes sense.
FAQs About Trust Decanting in Maryland
Is trust decanting always allowed in Maryland?
No. Decanting is limited by Maryland law and depends on the trustee’s powers and the trust’s terms.
Do beneficiaries have to approve decanting?
Beneficiaries are typically notified, but their approval is not always required. Court approval may be needed in certain cases.
Will decanting a trust affect my taxes?
It can. That’s why professional legal and tax advice is critical before making any changes.
What’s the difference between amending a trust and decanting it?
Amendments usually apply to revocable trusts. Decanting is a tool for modifying irrevocable trusts by transferring assets into a new trust.
Do I need a lawyer to decant a trust in Maryland?
Yes. Attempting to decant a trust without legal guidance can lead to serious errors, disputes, or unintended tax liability.
Conclusion
Trust decanting is a valuable estate planning tool that offers flexibility when an existing trust no longer aligns with your goals. However, it is not without risks, and Maryland law sets clear boundaries on when it may be used.
If you are considering updating your trust, the attorneys at Blackford & Flohr are here to help. We proudly serve clients in Baltimore, Annapolis, and throughout Maryland, guiding families through complex estate planning decisions with care and clarity.
Contact Blackford & Flohr
If you have questions about trust decanting, wills, trusts, or estate planning in Maryland, contact Blackford & Flohr today. Call us to schedule a consultation with an experienced estate planning attorney in Baltimore.
