On August 10, 2012, Illinois Governor Quinn signed into law
House Bill 4662, which amends the Illinois Trusts and Trustees Act to grant
trustees of certain trusts a discretionary power to appoint the principal of one
trust to the trustee of a second trust. Illinois has now joined at least fifteen
other states with so-called “decanting” statutes that grant this power to
trustees. The statute takes effect on January 1, 2013, and it will apply to any
trust administered under, or governed by, Illinois law unless the decanting
power is expressly prohibited by the trust’s governing instrument.
Generally, a decanting power allows a trustee, without the approval of a
court or the beneficiaries, to appoint the income or principal, or both, of a
trust to a second trust that may have different terms. Examples of common uses
of a decanting power include appointing the assets of an older trust to a new
trust with modern administrative provisions, adding a trust advisor or trust
protector, changing the trust situs, or changing the trustee or trustee
Illinois’ decanting statute distinguishes between trusts in which the trustee
has the absolute discretion to distribute trust principal (which includes
distributions for a beneficiary’s best interests, welfare or happiness) and
trusts in which the trustee does not have such absolute discretion. When a
trustee has absolute discretion to distribute trust principal, the terms of the
second trust may benefit one, more than one, or all the beneficiaries of the
first trust. The trustee may also grant the second trust’s beneficiaries powers
of appointment over the second trust, and the beneficiaries of the exercise of
such power may be broader than, and different from, the beneficiaries of the
In contrast, if a trustee does not have absolute discretion to distribute a
trust’s principal, then the current and successor beneficiaries of the second
trust must be the same as the beneficiaries of the first trust. The distribution
standards and a beneficiary’s power of appointment of the first trust must
remain the same in the second trust.
A trustee can exercise the decanting power without the consent of the trust’s
settlor or beneficiaries, and without court approval, so long as the trustee
provides notice of the trustee’s intention to decant the first trust to a second
trust to all the current and presumptive remainder beneficiaries and no such
beneficiary objects within sixty days. For any reason, a trustee may petition an
Illinois court to order the distributions permitted by the statute.
Illinois’ decanting statute also includes further provisions concerning
supplemental needs trusts for disabled beneficiaries, the continued application
of the Rule Against Perpetuities applicable to the first trust and certain tax
limitations. The Illinois Attorney General’s Charitable Trust Bureau must be
given notice if the trust being decanted has a charitable beneficiary.
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