Decanting to Eliminate a Beneficiary – New York Says Yes

by Kelly Dickson Cooper

Settlors often ask whether they can change the beneficiaries of an irrevocable trust because life circumstances or relationships have changed. Often, the answer is no.  However, in a recent case in New York, the trustee was able to accomplish the settlor’s desire to disinherit one of his children through a decanting.

The New York Surrogate’s Court upheld the decanting under the following facts:

• The trustee alleged that the settlor was unhappy with one of his daughters, in part, due to what he felt were excessive demands for money.
• The trustee relied on a distribution provision to decant the trust. The trust provision provided that an independent trustee had the power to distribute principal to a new trust for the benefit of the settlor’s descendants:
  • in equal or unequal amounts;
  • to the exclusion of other beneficiaries;
  • even if it exhausted the entire trust; and
  • as the trustee determined in his absolute discretion.
• However, the trust required that the trustee give notice of the exercise of the distribution/decanting power to the beneficiaries in writing 45 days prior to the distribution. The notice provision did not require the trustee to explain the niceties of the distribution in the notice.  The trustee gave the required notice without explanation of the distribution.
• The trustee made the distribution to a new trust that was identical to the first trust, except that the new trust excluded the settlor’s daughter and her descendants.
• The daughter and her descendants challenged the decanting after the death of the settlor, but the Court granted summary judgment to the trustee.

One of the objections was that the decanting did not comply with New York’s decanting statute.  The Court held that the procedure set forth in New York’s decanting statute had no bearing because the trust provided for a different process.  The Court relied on language in New York’s decanting statute that provides that decanting under the terms of the trust is still permissible.  Colorado’s decanting act has similar language in Section 15-16-903(4).