When to Consider Decanting a Trust to a Special Needs Trust

Trusts created under Wills are created for the benefit of a beneficiary after the Grantor passes.  These Trusts are meant to help support the beneficiary, oftentimes the Grantor’s children, after the Grantor’s passing to help ensure that their needs are taken care of after the Grantor is gone.

What happens in the instance when the terms of the Trust under will do not adequately meet the needs of a beneficiary due to circumstances the deceased Grantor would not have anticipated?

For example, in the unfortunate circumstance when a Grantor dies unexpectedly a Trust is often established for a minor.  It was not possible for the Grantor upon creating the Trust under Will to anticipate every need that their minor child would need as the child grows older.

This case occurred for a relationship at First State Trust Company for a minor beneficiary who had special needs.  The terms of the Trust allowed for distributions to the beneficiary per the trustee’s discretion for the minor beneficiary’s health, education, maintenance and support.

The minor beneficiary was about to turn 18.  When a beneficiary reaches the age of majority, it becomes the responsibility of the beneficiary to be able to manage their finances.  It is no longer the guardian’s responsibility.  In this instance, the beneficiary was not able to handle their finances in a manner to be able to support themselves.

In addition, the Trust contained age attainment provisions, in which the beneficiary would eventually receive the Trust outright in full upon reaching 30 years old.  The money to support the beneficiary would be lost due to the beneficiary not being able to properly manage their finances.

This Trust was essential in the support of the beneficiary.  The Grantor’s intent was to take care of their child.

The solution was decanting the Trust to a Special Needs Trust.  The Trust contained language allowing the decanting, and the Trust’s situs was in Delaware.  Therefore, legal counsel was able to complete the decanting.

The advantage of a Special Needs Trust was knowing that the trust would not terminate upon the beneficiary turning 30 years old, but rather last until their death.  In addition, a conservator was appointed so the beneficiary’s finances and care would be ensured.  All the beneficiary’s needs through the newly decanted Trust and the newly appointed conservator were met.

Due to decanting, we now know that the Grantor’s child will be adequately taken care of during their lifetime.

If anyone has any questions regarding the decanting of a Trust to a Special Needs Trust, feel free to reach out to me.

Stacie Wolff, CTFA

Swolff@Fs-Trust.com

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.