How to Decant an Out-of-State Trust into a Delaware Trust: Timelines & Rules

Trusts drafted decades ago in states like California, New York, or Illinois were often written under highly restrictive, outdated laws. Over time, families often find themselves trapped by rigid administrative rules, heavy state income taxes, or uncooperative trustees. Fortunately, Delaware law provides an elegant solution known as "decanting." Just as you pour old wine into a new decanter to leave the bitter sediment behind, a trustee can pour the assets of an old trust into a brand new Delaware trust with modernized, highly favorable terms. If you are a trustee or a frustrated beneficiary looking for flexibility, finding a specialized attorney in our US Lawyer Directory is your first step to restructuring your family's wealth.

Understanding Delaware's Decanting Statute

Decanting in Delaware is governed primarily by 12 Del. C. § 3528. This powerful statute grants a trustee who has the authority to distribute trust principal to the beneficiaries the legal power to distribute that principal into a second, modified or completely new trust. The beauty of Delaware's decanting law is that it typically does not require a judge's approval or a lengthy court battle. As long as the trustee acts in accordance with the statute, they can fundamentally rewrite the administrative machinery of the trust to better serve the family's current needs.

Changing Restrictive Administrative Provisions

Many old trusts grant the corporate trustee absolute control over both administration and investments. Families often become frustrated when the bank refuses to invest in new opportunities, like real estate or private equity, because it falls outside their standard portfolio. By decanting into a Delaware trust, you can adopt a "Directed Trust" model. This allows the family to strip the investment power away from the corporate trustee and hand it to a designated family member or chosen financial advisor, leaving the corporate trustee to handle only administrative paperwork.

Removing an Uncooperative Trustee

Sometimes, an old trust document fails to include a mechanism to fire or replace the current trustee. If the current trustee is overcharging or unresponsive, decanting is often the sharpest tool available. The current trustee can decant the trust into a new Delaware instrument that explicitly names a new, more cooperative Delaware corporate trustee to take over management.

Tax Implications of Decanting

High-tax states often aggressively tax the retained income and capital gains of trusts. Delaware offers a massive tax advantage. Under 30 Del. C. § 1636 and the rules of the Delaware Division of Revenue, Wilmington, Delaware does not impose any state income tax on trust income or capital gains accumulated for beneficiaries who live entirely outside of Delaware. By decanting a New York trust into Delaware, a family can potentially save millions in state income taxes as the trust portfolio grows over the decades.

Overcoming Beneficiary Objections

While decanting is powerful, it can sometimes cause friction among family members who misunderstand the process. Generally, a trustee is not legally required to get the consent of the beneficiaries to decant under Delaware law. However, standard practice requires giving the beneficiaries written notice. If a beneficiary files a legal objection claiming the decanting harms their financial interests, the matter can be swiftly resolved by the Delaware Court of Chancery, Wilmington, which strongly favors upholding the trustee's statutory right to modernize the trust.

Step-by-Step Decanting Process

Moving millions of dollars from one legal structure to another requires careful, meticulous legal steps to avoid breaching fiduciary duties.

Step 1: Legal Review of the Original Trust

Your attorney must review the original trust document to determine the trustee's level of discretion. Delaware's statute (12 Del. C. § 3528) grants the broadest decanting authority when the trustee has discretionary power over trust principal.

Step 2: Transferring Trust Situs to Delaware

Before invoking Delaware's decanting powers on an out-of-state trust, the trustee must legally establish Delaware jurisdiction. Under 12 Del. C. § 3332 and controlling Delaware Supreme Court precedent-including In re Peierls Family Inter Vivos Trusts, 77 A.3d 249 (DE Supreme Court 2013) and In re Ethel F. Peierls Charitable Lead Unitrust, 77 A.3d 232 (DE Supreme Court 2013)-the trustee must formally move the place of administration (situs) to Delaware and appoint a qualified Delaware trustee before Delaware administrative laws like decanting can apply.

Step 3: Draft the Second Delaware Trust

The lawyer will draft the second trust document. While you cannot add new beneficiaries who were not in the original trust, you can modernize administrative provisions, incorporate directed trust structures, and adjust trustee succession terms.

Step 4: Execute the Written Instrument of Decanting

The transfer is formally executed through an individualized written instrument signed and acknowledged by the trustee pursuant to 12 Del. C. § 3528(b) (often titled an Instrument of Decanting or Declaration of Exercise of Power of Appointment). Because Delaware does not issue standardized state forms for decanting, this document is custom-tailored by counsel to transfer the designated assets into the new structure.

How Much Does Decanting Cost?

The cost of decanting is generally paid directly out of the trust's assets, not from the beneficiary's personal pocket.

• Attorney Fees (Review & Drafting): The complex legal analysis and drafting required to decant a trust safely generally costs between $8,000 and $20,000.
• Trustee Transfer Fees: The outgoing corporate trustee may charge a termination fee (often a few thousand dollars), while the new Delaware trustee will charge an onboarding fee.
• Litigation Costs (If Opposed): If a beneficiary files a lawsuit to block the decanting, defending the action in Chancery Court can cost $25,000 to $50,000+.

How Long Does the Process Take?

The legal review phase typically takes 2 to 4 weeks. Once the new trust is drafted, many trustees choose (or are required by the original trust terms) to give the beneficiaries a 30 to 60-day notice period before moving the money. Factoring in the time it takes for financial institutions to wire the assets and retitle the accounts, a standard, uncontested decanting process takes roughly 3 to 6 months from start to finish.

Frequently Asked Questions (FAQ)