One of the biggest considerations in estate planning is avoiding an adverse tax consequence. When a person dies and his or her estate goes to another, there is often an estate tax associated with that transfer that must be paid. These estate taxes can be quite substantial and taxes of 55 percent of the value of the estate are not uncommon.
One of the ways that estate planning attorneys can assist you in avoiding high estate taxes is by setting up trusts utilizing a legal strategy known as decanting. The term gets its name from the practice of pouring fine wines into separate containers in an effort to allow the wine to “breathe”. Very similar to that process, decanting a trust allows a beneficiary to move assets from one trust into a trust set up in another state. This practice essentially pours one trust into another much like a wine that is decanted into another vessel.
New York estate planning laws to allow for trusts to be decanted, although under certain restrictions. For example, some trusts include language that allows a trustee to have greater freedom with his or her abilities to pour those assets into other trusts. This power is known as the authority to “invade” a trust. In New York, only a trustee with full invasion authority can pour the assets of one trust into another. Trusts that only grant power to the trustee for educational needs or medical care are often not sufficient to allow full decanting.
According to one expert in the decanting of trusts, Nevada, South Dakota and Tennessee are three states that have very favorable jurisdictions with regards to decanting. If you are considering the formation of a trust as part of your estate planning needs, there are a few things you should know. Your New York estate planning attorney can assess your particular needs and concerns and formulate an ideal trust decanting strategy. Additionally, your attorney can advise you on other lesser-known practices that may help you avoid adverse tax consequences.
Source: Forbes, “About That Irrevocable Trust . . . Change It And Save Tax!” Todd Ganos, Feb. 08, 2015
