Tuesday, April 9, 2019
Article on Two Cheers for Decanting: A Partial Defense of Decanting Statutes as a Tool for Implementing Freedom of Disposition
Stephanie Vara recently published an Article entitled, Two Cheers for Decanting: A Partial Defense of Decanting Statutes as a Tool for Implementing Freedom of Disposition, 32 Quinn. Prob. Law Jour. 23-59 (2018). Provided below is the introduction to the Article.
Freedom of disposition is the cornerstone of United States trust law. Most trust doctrines are designed to implement settlor intent, and the few that frustrate intent do so purposefully for public policy reasons. Statutorily authorized trust decanting - a relatively recent innovation in which a trustee with discretion is statutorily granted a default power to unilaterally modify an irrevocable trust - is noteworthy because it is not obvious at first glance that the underlying rationale is freedom of disposition. In fact, some commentators have expressed concern that decanting statutes disregard settlor intent too easily.
Nonetheless, decanting by statute is quickly becoming the majority-view in the United States. As of October 2018, twenty-six states have already enacted legislation, while Alabama and Illinois have proposed legislation to make decanting a default rule. This trend appears to have picked up even greater speed after the Uniform Law Commission published the Uniform Trust Decanting Act ("Uniform Act") in July 2015. Six states - Colorado, New Mexico, North Carolina, Virginia, Washington, and California - have already enacted the Uniform Act, while Alabama's will be effective January 1, 2019. One state - Illinois - recently introduced a bill proposing to adopt the Uniform Act, while Alaska is considering amending its statutes in ways that closely resemble the Uniform Act. Except for Colorado, New Mexico, and Washington, the Uniform Act or Uniform Act-like rules have replaced or will replace these states' current state-authored decanting statutes. Only one state, Minnesota, has passed its own decanting statute.
While the recent trend is to adopt the Uniform Act or a comparable statute, the Uniform Act is only one model for statutorily authorized decanting and merely the most recent one to gain popularity. Patterns indicate that the Uniform Act and similar statutes have become, and will remain, the majority approach for the foreseeable future. In addition to these statutes, other states, notably South Dakota, Nevada, and Delaware, have strong footholds and will likely remain relevant, as well.
Despite the rapid proliferation of decanting statutes, wide divergence in their approaches, and continuing disagreement as to whether decanting violates or protects freedom of disposition, there has been little to no research attempted to thoroughly understand and explain how decanting statutes fit into the larger body of United States trust law, which centers on freedom of disposition. Moreover, decanting statutes are not mere codifications of common law in jurisdictions with a decanting statute, except in Florida. Therefore, it cannot be said that courts have already performed enough analysis to determine whether these statutes square with overarching trust law and policy, including freedom of disposition.
This article walks through how the different decanting statutes treat major substantive changes - beneficiary removal, beneficiary additions, fixed interest modifications, distribution standard modifications, accelerated vesting, postponed vesting, creation of supplemental needs trusts, and the reduction, elimination, and expansions of powers of appointment - that decanting can achieve, to assess the extent these decanting statutes protect or frustrate freedom of disposition. To make this assessment, this article evaluates the statutes in terms of how well they adhere to the two settled doctrines that respect and further settlor intent: (1) the greater-includes-the-lesser principle - the presumption that a more expansive grant of a trustee power includes any and all less expansive iterations of that power unless there is clear evidence of a contrary intent; and (2) probable intent - basic understandings about what a settlor would likely have preferred, given certain circumstances. In comparing how various decanting statutes approach key substantive modifications that decanting can theoretically achieve, this article concludes - although no statute perfectly balances settlor intent and flexibility - the Uniform Act and similar bifurcated statutes protect freedom of disposition reasonably well, while the Nevada statute and similar approaches tend to permit a trustee to disregard freedom of disposition too easily. If the goal of United States trust law is to maintain a coherent body of law with the objective of furthering freedom of disposition, then it will be crucial for states to adopt decanting statutes like the Uniform Act, as opposed to statutes similar to the Nevada model.